After-repair value, or ARV, is the estimated value of a property after the planned renovation is completed. It is supported by comparable sales and the finished property’s characteristics, not by adding your renovation spend to the purchase price. The lender’s accepted valuation may differ from your estimate.
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Which Comparable Sales Should I Use?
Look for relevant completed sales with similar location, size, layout, lot and finish level. Active listing prices show what sellers ask, not necessarily what buyers will pay. Explain differences instead of selecting only the most expensive nearby sale.
The renovation scope must support the condition assumed in the comparison. A cosmetic refresh should not be valued as if it included new systems, additional permitted living space and a fully redesigned layout unless those items are actually planned and feasible.
Why Does ARV Affect the Loan Amount?
A provider may limit financing by both project cost and after-repair value. Even a budget that fits one test may fail the other. Ask which valuation and cost categories the program uses.
Test a Lower Resale Value
If a hypothetical cap is 70% of ARV, a $400,000 value would support a $280,000 cap before other limits. At $370,000 ARV, that cap becomes $259,000, a $21,000 difference. The 70% figure is illustrative, not a Propello program term.
How Should I Use ARV in My Offer Decision?
- Estimate selling costs and carrying costs separately.
- Use a renovation budget with a contingency.
- Test a lower sale price and longer holding period.
- Compare the remaining profit with your cash and execution risk.
Do not confuse a borrowing limit with a recommended purchase price. A loan can be available while a project’s expected profit is too thin for your goals. Keep the purchase decision grounded in the complete economics, including what happens if the appraisal or eventual sale comes in below your target.
Educational information, not a loan offer. Availability and terms depend on the program, property or business, and borrower qualifications. Legal and tax questions should be reviewed with your advisers.