What is a arv in real estate? If you have this question, you can get the answer about ARV and how to calculate it below.
After-Repair Value (ARV) in Real Estate
what is a arv in real estate? ARV or after-repair service in real estate is the estimated value of real estate property after the renovations are completed.
It is used by house flippers to gauge the worth of the fixer-upper property, including the purchase price and then resold price after repairs. The renovations or repairs can be new kitchen appliance installation or roof replacement.
The flipped home is usually not sold in the best condition. That is why investors and house flippers do not want to buy them at market value because they want to acquire a profit from them. In this circumstance, ARV can be used for buying a property at a discounted price by considering the repair costs.
You can also use ARV to secure a loan for the house flipping cost. You can try to look for lenders that offer renovation mortgages.
There might also be loans for home renovations with a maximum amount of around 65% of the ARV. ARV can also be beneficial for non-flippers because they can understand how much value the renovations will add to your house by calculating ARV.
How to Calculate ARV
Now, it is time to calculate ARV. For this purpose, you need to know the basic formula of ARV which is pretty simple. ARV is equal to the property’s current value and the value of renovations.
By using this formula, you can get an idea about the value of the house after renovations. However, it is not enough to use the basic formula only to calculate ARV because a few things must also be included for making a fully informed ARV estimation.
You should follow these steps if you want to use ARV to come up with a property offer or to secure repairmen financing.
First things first, you need to evaluate the comparables. What do comparable mean? Comparable is the property that is similar to the one you are flipping or renovating sold nearby.
To find real estate comparables easily, you can check a multiple listing service. A real estate agent can help you calculate ARV if you are not sure about how to do it.
The comparables must be in the same neighborhood where the house is being renovated. The square footage and property style must be similar just like the property age. They must be in a similar condition to your property, as well.
Next, you also need to appraise the property to know the current value of your house. It will help you find a better idea of your property’s worth before the additional value of renovations.
The appraiser you hired will evaluate every part of your house, including location, curb appeal, property size, number of amenities, and overall condition.
Last but not least, the value of property repairs must be assessed, as well. Some repairs needed might be pointed out by the appraiser including the cost of repairs.
Understanding what is a arv in real estate will help you prevent unexpected costs for additional fixing needs after calculating and using the ARV.