What is the ARV?
The After Repair Value is the amount you can re-sell the property for after you make the necessary improvements and repairs.
How is the ARV Calculated?
To estimate the After Repair Value of a property you want to step into the shoes of an Appraiser. Home Appraisers use an appraisal method called the Sales Comparison Approach which compares recent comparable sales of similar properties in the area.
To estimate the value of a property the Appraiser will 'pull comps' of 3 to 5 comparable properties that have sold within the last 1 to 6 months (the more recent the better). Recent comparable sales should be in close proximity to your property, have similar square footage, # of beds/baths, and similar level of finishes and amenities.
The Appraiser then compares the 'Subject Property's' features and amenities with the comparables and makes pricing adjustments up and down to create an equilibrium and make the properties apples-to-apples. The Appraiser then uses price adjustments to adjust the Sales Prices of the comparables to estimate an approximate value of the 'Subject Property'.
Getting A Pulse on Your Market
In order to quickly and accurately predict the After Repair Value of a property you need to have a 'pulse' on your market and understand the value of comps in your area.
Here are some basic strategies for getting a pulse on your market:
#1 Establish a 'Farm Area
Narrow down your market research to specific School Districts and Neighborhoods. Trying to focus on too large of a market will have you stretched too thin. Narrowing down your search and focusing on a specific segment of the market will help you develop a better pulse on the market, market values, competition.
Once your business starts to grow you can start to grow your farm area & expand your market reach.
#2 Daily MLS Notifications
The best way to get a pulse on your market is to get daily email notifications of new MLS listings in your 'farm area'. Find a local Real Estate brokerage, setup an account & setup your property criteria to get daily notifications of new listings. Every morning you will get a new batch of listings which to help you get a pulse on the competition & sales values on the market.
#3 Comparable Sales
Although Daily MLS Notifications will tell you what's currently listed for sale, it doesn't tell you the actual sales price of the property sold. In order to really see what properties are selling for, you need to get access to the MLS.
Realtor - Your real estate agent should be able to get you access to the MLS. Have your Agent pull Comparable Sales information dating back 4 to 6 months so you can get a full understanding of comparable sales prices & the average days-on-market.
Zillow/Redfin - If you can't get direct access to the MLS, Zillow & Redfin can be decent resources for finding recently sold information, but unfortunately their data feed can be delayed.
# 4 Spy on the Competition
To really understand your comps and competition, you should physically walk through the properties for sale in your neighborhood to get a pulse on the competition's pricing and finished product. This will help you understand exactly what kind of flipping competition you are up against in your market.