How to stress test an agent's ARV when the disagreement is about adjustments, not comps

Question

Say a 1,400 square foot 3/2 in a decent submarket comes back from an agent at an ARV of 315k, built from six comps, four within a half mile, all sold in the last five months, with adjustments that look reasonable on paper. An investor working from construction pricing rather than comps might land on 275k instead, built from known finish costs and what similar houses list at and sit for. If rehab is scoped at 62k and purchase at 178k, the deal works comfortably at the agent's number and is marginal after holding and selling costs at the lower one. When the disagreement is about adjustment values rather than which comps to use, the way to stress test it is to isolate the adjustments themselves. Ask the agent to show dollar adjustments per feature, not just the final number, then compare those line items against actual paired sales, two comps that are identical except for the one feature in question, like a finished basement or an updated kitchen. That turns a vibe disagreement into a number disagreement. It also helps to run the deal at three ARVs, the agent's, the investor's, and the midpoint, and see where the margin actually breaks, because that tells you how much the disagreement even matters to the decision.

Rena Expert · Accepted Answer

Pull the sold comps she used and separate two things: the sale price and the days on market. A comp that sold in 9 days at 315k and a comp that sold in 84 days after two price cuts at 315k are telling you different things about whether 315k is the market or the ceiling. Your instinct that houses at your finish level sit is a days-on-market observation, and it's testable.

Then attack the adjustments individually. Ask her what dollar figure she assigned to the finished basement and to the kitchen, and ask her to show you a matched pair: two sales in the same submarket that differ mainly in that one feature. If the pair supports a 22k basement adjustment, she's right and your 275k is too low. If she can't produce the pair, the adjustment is a judgment call and you're allowed to discount it. Appraisers do exactly this and they're often thin on support too.

The number you didn't put in the post is the resale timeline. 178k purchase plus 62k rehab is 240k before closing costs both ways, holding, and financing. At 315k with 6 percent selling costs you net around 296k. At 275k you net around 258k. That spread is your entire margin, so the question is really how much cushion you need for the ARV to be wrong by 20k, which it can be even with good comps.

One thing that will move this more than the argument: get a licensed appraiser to do a subject-to-completion appraisal against your scope of work. It costs a few hundred and it's a third party with no commission attached. If your lender is already requiring one, ask when it lands relative to your inspection deadline, because finding out after the contingency expires is the version of this that hurts.

chriswalton8 · Answer

The subject to completion appraisal is the part worth spending money on. An agent's ARV and an appraiser's ARV can differ for a structural reason: one of them gets paid when the deal closes. That doesn't make the agent dishonest, it just means her 315k and a stranger's 315k aren't the same evidence. Also @gregpowell66, if she's not being pushy about it, that's worth something. Ask what she'd list it at if handed the finished product tomorrow, then ask what she'd expect it to actually close at. Those two numbers are sometimes 15k apart, and the second one is the one to underwrite.

How to stress test an agent's ARV when the disagreement is about adjustments, not comps

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