How to work out ARV from comps, and the four adjustments that change the answer

Every number in a flip or a BRRRR is derived from the after-repair value. Get it wrong by ten percent and nothing else in the model matters.

It is also the only major input that is not a fact. Purchase price is a fact. Rehab is a quote. Taxes are published. ARV is a judgement about what a buyer will pay for a house that does not exist yet, and the way to make it defensible is to build it the way an appraiser would rather than the way a listing site does.

Start with three sales, not three listings

A listing is what somebody hopes to get. A sale is what somebody paid. Only the second one is evidence.

Look for closed sales in the last six months, within about a mile, similar in bedrooms, bathrooms, square footage and age. Then narrow further, because the qualifier that matters most is the one people skip: the comp has to match your finish level after the rehab, not the condition of the house you are buying.

If you are taking a tired house to a mid-grade finish, a fully renovated flip with quartz and a new roof is not your comp. It is the ceiling you will not reach.

Then adjust, and show your work

Two houses are never identical, so a raw average of three sale prices is not an ARV. Each comp gets adjusted toward your property.

The four adjustments that move the number most:

1. Square footage. Adjust at the local price per square foot for the difference, not at the full market rate. An extra 200 square feet does not add 200 times the whole-house price per foot, because land and fixed costs are already in the base.

2. Bedrooms and bathrooms. A bathroom is usually worth several times a bedroom in the same house, and the third bedroom is worth far more than the fifth. Count usable rooms, not what the listing claims.

3. Condition and finish. The hardest and the most consequential. If a comp sold with finishes above what you plan, adjust down. This is where optimism enters a model, and it enters silently.

4. Garage, lot and outdoor space. Real in most markets and close to zero in a few. Check the sales rather than assuming.

Adjust each comp, then take the adjusted figures. If the three land far apart, you do not have an ARV yet. You have three guesses, and the correct response is to find better comps rather than to average the disagreement.

The three that quietly break an ARV

A comp on the wrong side of a boundary. School catchments, municipal lines and flood zones can put two similar houses in different markets while sitting four hundred metres apart. Check which side yours is on before you use the comp.

A sale that was not arm's length. Family transfers, foreclosure sales and portfolio purchases do not price like an open-market sale. They appear in the same data and they will drag your number in either direction.

Six months of drift. In a moving market, a sale from eight months ago is not evidence about today. Where you have to reach back, say so and treat the result as wider.

What an ARV is not

It is not the highest number your comps support. Taking the top of the range is the same decision as assuming everything goes right, and it is usually made without noticing that a decision was taken at all.

It is also not the number you need for the deal to work. That direction of reasoning is the most expensive habit in this business: starting from the profit you want, and reverse-engineering the ARV that produces it. A model built that way returns your own assumption to you and calls it analysis.

How to use it once you have it

Carry a range rather than a point. If your adjusted comps support a value between two figures, run the deal at the lower one and treat the upper as luck.

Then check what the deal looks like if the appraisal lands under your range. On a flip that means a longer hold and a price cut. On a BRRRR it means less cash back and more of your own money stuck in the property. If neither outcome is survivable, the ARV was carrying the whole deal, and that was worth knowing before the offer rather than after.