Why ARV Is the Foundation of Every Deal
Every real estate calculation starts with the After Repair Value. Your MAO depends on it. Your profit projection depends on it. Your lender's appraisal depends on it. Get the ARV wrong by 10% and your entire deal falls apart.
Step 1: Find Comparable Sales
A comparable sale ("comp") is a recently sold property that is similar to what your subject property will look like after renovation. The key criteria:
Location (Most Important)
•Ideal: Same subdivision or within 0.25 miles
•Acceptable: Same neighborhood, within 0.5 miles
•Stretch: Same school district, within 1 mile
•Avoid: Different school district or across a major road/highway
Recency
•Ideal: Sold within 30 days
•Acceptable: Sold within 90 days
•Stretch: Sold within 180 days (adjust for market trends)
•Avoid: Sales older than 6 months in active markets
Size and Configuration
•Square footage: Within 10-15% of subject property
•Bedrooms/bathrooms: Same configuration preferred (a 3/2 compared to another 3/2)
•Lot size: Within 20% (especially important for land-heavy areas)
•Stories: Compare single-story to single-story, two-story to two-story
Condition
•Your comp should match your subject's AFTER-REPAIR condition. If you are planning a full renovation, your comps should be recently updated homes — not other fixer-uppers.
•Look for sales descriptions that say "remodeled," "updated," "move-in ready," "new kitchen," etc.
Step 2: The $/Sqft Method
Once you have 3 comparable sales, the simplest ARV estimation method is price per square foot:
1.Calculate $/sqft for each comp:
- Comp 1: $275,000 / 1,450 sqft = $189.66/sqft
- Comp 2: $282,000 / 1,520 sqft = $185.53/sqft
- Comp 3: $268,000 / 1,380 sqft = $194.20/sqft
2.Average the $/sqft: ($189.66 + $185.53 + $194.20) / 3 = $189.80/sqft
3.Apply to your subject: 1,500 sqft x $189.80/sqft = $284,700 ARV
Step 3: Make Adjustments
The $/sqft method works well when your comps are very similar to your subject. But comps are rarely perfect. When differences exist, make adjustments:
Common Adjustments:
Pool:
•Comp has a pool, subject does not: subtract $10,000-20,000 from comp value
•Subject will have a pool, comp does not: add $10,000-20,000 to comp value
•(Pools add less value than they cost to build)
Garage:
•2-car vs 1-car garage: adjust $5,000-10,000
•Attached vs detached: adjust $3,000-5,000
Lot size:
•Per-acre premium varies wildly by area
•In suburban Texas: $5,000-15,000 per additional quarter-acre
•In rural Texas: $2,000-5,000 per additional acre
Age and updates:
•A 2023 build vs a 1995 build (even if updated): adjust $5,000-15,000
•Updated kitchen vs original: adjust $10,000-20,000
•Updated bathrooms: adjust $3,000-8,000 per bathroom
Square footage:
•If using the $/sqft method, this is already accounted for
•If using gross sale prices, adjust $50-100/sqft for size differences
How to Apply Adjustments:
•If the comp is BETTER than your subject → subtract from the comp's price
•If the comp is WORSE than your subject → add to the comp's price
The adjusted comp prices should converge toward your ARV estimate. If your three adjusted comps are $278K, $282K, and $275K, your ARV is approximately $278,000.
Common ARV Mistakes
Mistake 1: Cherry-Picking the Highest Comp
It is tempting to use the one comp that sold for $50K more than the others. But that sale may have been an outlier — a bidding war, a cash buyer who overpaid, or a property with a view/feature that yours does not have. Use the average of 3 representative comps, not the best one.
Mistake 2: Using Active Listings as Comps
Listings are asking prices, not sale prices. In Texas markets, homes often sell for 1-5% below asking price. Only use closed sales (sold, not pending or active).
Mistake 3: Ignoring Market Direction
If the market is appreciating at 5% per year and your closest comps are 4 months old, those comps may understate current value by ~1.5%. Conversely, if the market is cooling, older comps may overstate value.
Check the Texas Signals market pulse data and recent sales trends for your target area before finalizing your ARV.
Mistake 4: Comparing Renovated to As-Is
If you plan to gut-remodel a 1970s ranch, your comps should be recently renovated homes — not other 1970s ranches in original condition. Your ARV represents the AFTER state, not the current state.
Where to Find Comps
MLS Access (Best Source)
If you have MLS access (or work with an agent who does), this is the gold standard. You can filter by:
•Sold date, location, sqft, beds/baths, lot size, pool, garage, year built
County Appraisal District (Free)
Texas CAD websites (linked from Texas Signals property pages) show recent sale prices recorded with the county. The data is public and free but less detailed than MLS.
Texas Signals Property Data
Every property on Texas Signals includes CAD appraised values, which can serve as a rough comp reference. The owner portfolio feature shows other properties owned by the same entity — useful for tracking investor activity in an area.
Zillow/Redfin/Realtor.com (Free but Limited)
These sites show recent sales and can be filtered by size and location. However, they may not show all sales (off-market, FSBO, investor transactions), and their automated valuations should never replace a proper comp analysis.
Quick Reference
•Use 3 comps minimum — closed sales, similar size/condition/location
•Within 0.5 miles and 90 days — tighten or loosen as needed
•$/sqft method is simplest and most reliable for similar homes
•Adjust for differences — pool, garage, lot size, updates, age
•Never cherry-pick the highest comp or use active listings
•Factor market direction — appreciating or depreciating?
•Comps must match your AFTER condition — not as-is
Head to the Deal Analyzer calculator to enter your comps and calculate ARV, then apply the 70% rule to find your Maximum Allowable Offer.