What ARV actually means and who is responsible for setting it

Question

A common point of confusion for anyone who has worked around flips without learning the vocabulary: everybody says ARV, after repair value, but after which repairs is rarely specified. Paint and carpet produces one ARV. A full kitchen renovation produces another. That is because ARV is not a fixed property fact, it is a projected number tied to a specific, defined scope of repairs, and it changes as that scope changes. Who sets it depends on context. A lender's appraiser sets the ARV that matters for financing, using comparable sales adjusted to the proposed finished condition. An agent can produce a comparative market analysis that estimates ARV for planning purposes, which is useful but not what a lender relies on. An automated estimate like a Zillow figure is neither, and treating it as an ARV is a common and costly mistake because it does not account for the specific scope of work planned. On the spelling: ARV, after repair value, is the standard term. AVR is not a recognized version of it and is worth dropping from the vocabulary entirely.

Rena Guide · Accepted Answer

ARV is the right term. After repair value. AVR is a typo that gets copied around, and AVM is a different thing, an automated valuation model, which is what Zillow's estimate is.

ARV is a conditional number, and the condition is your scope of work. It means: if this house is finished to this described standard, what will a buyer pay for it. Change the scope and you change the ARV, so the honest way to write it down is always as a pair. Scope of work, then the value that scope produces. A house that gets paint and carpet only might come in at 300k. The same house with counters, appliances and updated baths might come in at 325k. Neither number is wrong. They answer different questions.

On who decides, three people have opinions and only one of them has money at stake with you. An appraiser gives a supported opinion, usually subject to completion of your written scope, and lenders on renovation loans normally order one. A listing agent who sells in that specific subdivision will give you a number for free and often a good one, because they want the listing. You produce your own from comparable sales, which means recent sales of similar houses nearby that are already in the finished condition you're aiming for.

The part that catches people from the trades side is that comps have to be sales, not listings. What a neighbor is asking tells you nothing. And in roughly a dozen states sale prices aren't public record at all, so in those places you'll need an agent with MLS access to see them, which is a real reason to build that relationship before you need it.

aliyah_b · Answer

The pair thing is the bit I wish someone had said to me earlier. I'd been carrying one ARV in my spreadsheet and changing the scope underneath it whenever the budget got tight, without ever writing that down, which meant my model was lying to me in a direction I couldn't see.

bmoreno23 · Answer

Coming from zero as well and I'd assumed the appraiser was some kind of neutral referee who produced the true number. Reading this, it sounds more like an informed opinion with a methodology, and two of them could differ by 15k on the same house?

mikeoconnell7 · Answer

They can, yes. Different comp selection, different adjustments. That is why appeals on appraisals exist.

jordan_ellis2 · Answer

What took me longest to accept, after half a year of digging into this, is exactly @monica_tran3's question, that ARV isn't sitting in the property waiting to be discovered. It's an output of decisions you haven't made yet. Once that clicked, the 70 percent rule stopped feeling like arithmetic and started feeling like a bet on your own scope discipline.

omar_haddad · Answer

Scope creep is my whole beat so let me put a number on why the pairing matters. You set ARV at 325k on a scope that includes new counters. Halfway through you decide the cabinets look tired next to the new counters, so you reface them. That's 4k to 6k on a small kitchen. Your ARV did not move, because buyers were already going to read that kitchen as "updated" from the counters and appliances. You spent 5k to buy zero dollars of value.

That's the most common way a cosmetic flip loses money. Not a disaster. A series of reasonable-sounding 4k decisions.

carlos_nunez · Answer

@omar_haddad the reverse also happens, where cutting a 900 dollar item costs the sale. New counters go unnoticed if the front door still looks decades old.

devon_pierce · Answer

For anyone building a list rather than buying yet, recording two ARVs per property solves exactly this ambiguity. A light scope number and a full cosmetic number, with the scope written next to each. It's slower but it means comparing two houses actually compares the same thing.

hannah_west29 · Answer

If a lender orders an appraisal subject to completion and it comes in below the underwritten number, the outcome depends on the loan structure. Sometimes it's a smaller loan with the borrower covering the gap, and sometimes the deal doesn't survive the shortfall. Which one applies usually comes down to the borrower's reserves and how much room the deal had to begin with.

nicole_adeyemi · Answer

@hannah_west29 it depends on the lender and what the loan is sized against. Some size to ARV, some to purchase plus rehab cost, some to the lesser of the two. Ask which, in writing, before going under contract. It changes the answer completely, and finding out at the wrong moment is a common and costly mistake.

raj_mehta14 · Answer

The AVM versus ARV distinction trips up a lot of people outside the renovation side. An AVM is a computer's estimate of current value from comparable sales, no repairs assumed. ARV is a projection tied to a specific scope of work, and it only means something once the scope is defined. Lenders and agents land on different ARV numbers for the same house because they assume different renovations.

What ARV actually means and who is responsible for setting it

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