Glossary › Glossary
ARV stands for After-Repair Value — the estimated or appraised market value of a property after all planned renovations are complete. Hard money lenders use ARV as the primary basis for sizing fix and flip loans because they are lending against the future value of the property, not its current distressed condition. Most hard money lenders cap fix and flip loans at 70-75% of ARV.
When a real estate investor buys a distressed property to renovate and resell, the property is worth significantly less today than it will be worth after renovation. A house purchased for $150,000 that needs $60,000 in work might sell for $280,000 after a full renovation.
The $280,000 is the ARV — the after-repair value.
Hard money lenders use this number because they are providing capital for a project, not just a current asset. The loan is designed to get the investor from purchase to completed renovation to sale. Sizing it against the current value (the $150,000 distressed purchase price) would be too conservative — the lender would only fund a small fraction of what the project actually needs. Sizing it against the ARV ($280,000) allows the lender to fund the project at a level that makes economic sense for the investor.
ARV is not a guess or an aspiration. It is an estimate based on comparable sales — properties similar in size, condition, and location that have actually sold in a recent time window after renovation.
The appraisal method: For most hard money loans, the lender orders an appraisal from a licensed appraiser who performs both an "as-is" valuation (what the property is worth today) and an "as-repaired" valuation (what it will be worth after the planned renovations, based on comparable completed sales). The "as-repaired" number is the ARV the lender uses to size the loan.
What appraisers look for:
Appraisers do not use list prices or pending sales as comparable evidence — only closed sales.
Hard money lenders apply a cap to the loan amount based on ARV — typically 70-75% of ARV. This cap exists alongside the LTC cap (loan-to-cost).
Example:
Lender's program: 85% LTC, 75% of ARV (whichever is lower)
The limiting constraint is LTC at $178,500. The borrower brings $31,500 to closing.
Now change the ARV: if the ARV were $220,000 instead of $280,000:
Now ARV is the limiting constraint. The borrower must bring $45,000 to closing.
This is why ARV accuracy is the most important number in fix and flip underwriting. An ARV that is too aggressive creates a gap the borrower has to cover at closing.
Using list prices as comparables. A property listed at $290,000 is not evidence of a $290,000 ARV. Only sold prices count.
Ignoring condition differences. A renovated comparable at $280,000 supports a fully renovated ARV. A partially renovated comparable at the same price does not support the same conclusion.
Assuming market appreciation. "The neighborhood is improving" is not a comp. What properties actually sold for recently is a comp.
Overestimating scope impact. Adding a granite countertop does not add $30,000 to value in most markets. Know what renovations contribute to value and which ones do not move the needle meaningfully.
Using too wide a geographic radius. In urban markets, a property two miles away may be in a completely different micro-market with different pricing. Be precise.
These three terms are related but distinct:
For fix and flip underwriting, the lender uses both AIV and ARV. AIV establishes the baseline; ARV establishes the ceiling.
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