When calculating the after repair value or ARV of a property, we always suggest using comparables or comps. from a real estate agent. Let’s go through the math of how to use these comparables to get the best ARV possible. As a quick review, remember the best comps have 3 important factors: They are close to your subject property, they have sold recently, and they are similar to your subject property.
When you get comps from your agent, you will need 2 numbers for each comp you receive: the amount that the property sold for and the number of square feet in the property. Once you receive this information, you will want to calculate the cost per square foot for each comp you have. You get the cost per square foot by taking the amount the property sold for and dividing it by the square feet in the property (for example a property of 1000 square feet sold for $100,000, so take $100,000 / 1000 = $100). In this example the cost per square foot is $100. You will need to perform this calculation for each comp you have.
Now that you have the cost per square foot for each comparable property you received, you will need to evaluate those numbers. If you have 6 or more comps, you can take the high cost per square foot and the low cost per square foot and throw them out. With 5 or less you will use all of them. This will help dial in your ARV a little better.
Once you have the cost per square foot on all the comps you are going to use, you will need to get an average cost per square foot. To do that, take the cost per square foot on all the comps you are using, add them up, and divide by the number of comps used. (example: You have 4 comps with a price per square foot of 103, 98, 90,108. 103+98+90+108=399, 399 / 4 = 99.75). $99.75 is your average cost per square foot.
The last calculation you need to do is take the average cost per square foot and multiply it by the number of square feet in your subject property. Let’s say are subject property is 1100 square feet, so take 99.75 * 1100 = $109,725. $109,725 is the ARV.
This is a great way to calculate your ARV, because it is based on what similar properties in the neighborhood are selling at right now.