After-repair value (ARV)

How after-repair value works

ARV is a forecast, not a current value. An appraiser estimates what the property will be worth when the scope of work is finished, usually by comparing it with recently sold properties that already have the planned finishes, size and layout. The appraisal is “subject to completion” of the plans and budget the borrower submits.

Lenders use ARV in two ways:

• Sizing: many fix-and-flip programs cap the total loan, including rehab funds, at a percentage of ARV that each program sets.
• Exit: ARV shows whether the borrower can repay by selling or refinancing at the end of the term.

Why it matters to a private lender

Because ARV depends on the work being done and the market holding, it is less certain than an as-is value. An inflated ARV makes a loan look safer than it is: the loan-to-ARV looks fine while the as-is LTV and the loan-to-cost are high. Careful lenders check the comparables, test the budget against the scope of work, and protect themselves by releasing rehab money in draws only after inspections confirm the work.

Capital partners and loan buyers usually want to see the as-is value, the budget and the ARV together, and many set limits on all three ratios.

Example

Hypothetical. A house bought for $250,000 needs $90,000 of work, and the appraiser’s ARV is $450,000. A loan capped at 70% of ARV could be up to $315,000. If comparable sales drop the realistic ARV to $400,000, the same loan becomes 79% of ARV.

See LTV vs LTC vs ARV.