How hard money lenders evaluate ARV — and how to estimate it yourself

After-repair value is the price the finished property should sell for. Every hard money loan and every flip profit hangs on it, and it is the number investors most often get wrong — usually by being optimistic.

How the lender gets the number

The lender orders an appraisal “subject to” your scope of work, or a broker price opinion, sometimes both. The appraiser selects three to six recent sales of renovated, comparable homes — same neighborhood, similar size, age, style and condition — sold within the past three to six months, and adjusts each for differences (square footage, beds and baths, garage, lot, condition, date of sale). The adjusted comps bracket the ARV. The lender may also run an automated valuation model as a sanity check and apply its own haircut in a softening market.

What lenders distrust

Comps from a different school district or across a highway
Comps larger than 15% to 20% bigger or smaller than the subject
Active listings and pending sales used as comps (they are asking prices, not values)
A single outlier sale driving the estimate
ARVs that assume the best finish level in a neighborhood that does not pay for it

Estimate it yourself, before you offer

Pull sold (not active) listings from the past six months within a half-mile (a mile in suburbs), same property type, renovated condition.
Keep only those within 20% of your subject’s square footage and similar bed/bath count and age.
Compute price per square foot for each; discard the highest and lowest if you have five or more.
Multiply the median price per square foot by your subject’s finished square footage.
Adjust downward for anything your finished product will lack (no garage, busy street, smaller lot); rarely adjust upward.
Ask an active local agent to critique the number — and listen when they say it is high.

ARV and your loan

Most lenders cap the total loan at 65% to 75% of ARV. If your ARV is $300,000 and the lender lends 70%, the maximum loan is $210,000 — purchase and rehab combined. A $20,000 ARV miss cuts the available loan by $14,000 and your profit by the full $20,000. Conservative ARVs lose you some deals; optimistic ARVs lose you money.

Frequently asked questions

Can I challenge a low ARV appraisal?

You can submit better comps through a reconsideration of value; lenders sometimes accept a second opinion. Success requires factual errors or omitted comps, not disagreement.

Does a higher-end renovation raise ARV proportionally?

No. Every neighborhood has a ceiling; spending beyond what the top comps sold for rarely returns the money. Finish to the level of the best-selling comps, not above.

How does ARV differ from as-is value?

As-is is the property’s value today, in current condition — what the lender could sell it for if you defaulted tomorrow. ARV is the projected value after your work. Lenders look at both; the as-is value limits the purchase funding, the ARV limits the total.