After Repair Value

"After repair value" (abbreviated ARV) is the savvy real estate investor's equivalent to fair market value (FMV). It's no secret that the vast majority of discounted properties are abandoned junk properties, vacant properties or fixer uppers.

They are often properties that need repairs to be returned to the fullest profitable use. As a result, investors have found that they must know the difference between the "as-is" value of a desired property, and the value we expect a developed piece of real estate to fetch on the open market after it has been completely fixed up.

This open market value "after fix-up" is known in real estate wholesaler and investor circles as the ARV.

After Repair Value Vs. As-Is Value

Why?

As a real estate wholesaler, you primary concern should be,"At what price would a substantial segment of rehabbers,landlords and cash buyers in my area fall all over themselves to buy this property from me and be willing to close within a week?"

That's your As-Is Value.

Your customers (rehabbers) who plan to renovate and re-sell the houses you offer them, will use their estimated ARV to determine expected profit after covering costs (acquisition costs, holding costs, and soft costs).

The ARV, FMV, and As-Is Value are all estimates used for analysis and decision making by parties to a real estate transaction.

They are not set in stone...(and they are certainly neither "fair" nor "unfair").

Steps for Estimating After Repair Value

• Use sales figures from home sales not listing (asking) prices
• Compare home sales figures of directly comparable properties in the same subdivision or very nearby
• Use rehab estimates from about 3 licensed general contractors - each component must be clearly itemized.
• Use supplies and parts cost estimates from the big box stores - Home Depot,Lowe's and Sears

The first two points let you know what you can expect to sell the property for after it's been renovated.The last two points have more to do with determining how much you want to pay for a property you intend to rehab, by factoring out expected repair and other costs.