What Happens If Your ARV Is Wrong?
The after-repair value (ARV) is the foundation of every wholesale deal. Every other number flows from it: the maximum allowable offer, the buyer's expected profit, and your assignment fee. When the ARV is wrong, everything built on top of it crumbles.
The ripple effect of a wrong ARV
If your ARV is too high
This is the more common and more dangerous error. When you overestimate the ARV:
- You overpay the seller. Your offer is based on a higher exit value, so you agree to a higher purchase price than the deal supports.
- Buyers see the problem. Experienced investors run their own comps. When they see your ARV is $280K but their analysis says $250K, they either lowball you or pass entirely.
- You cannot find a buyer. The deal does not work at the price you contracted. You have to reduce your fee, negotiate a lower price with the seller, or walk away.
- Your reputation suffers. Buyers who receive deals with inflated ARVs stop opening your emails. One bad deal can cost you future business.
If your ARV is too low
Less dangerous but still costly. When you underestimate the ARV:
- You leave money on the table. You could have priced your assignment higher, but your conservative ARV led to a lower asking price.
- Buyers jump on it fast. A deal that looks like a steal closes quickly, which is good for your reputation but bad for your wallet.
- The seller may have accepted a higher offer from someone else. If your offer was too low because your ARV was too low, the seller may negotiate harder or go with another buyer.
How ARV errors happen
Using wrong comps
The most common mistake. Pulling comps that are too far away, too different in size or condition, too old, or from a different school district or subdivision. A comp from a neighborhood with $300K homes does not apply to a property in a neighborhood where homes sell for $220K, even if they are one mile apart.
Not adjusting for differences
No comp is identical to your subject property. If your subject has 3 bedrooms and 1,400 square feet but your comp has 4 bedrooms and 1,800 square feet, you need to adjust. Comp adjustments account for differences in size, bedrooms, bathrooms, lot size, pool, garage, condition, and location.
Using too few comps
One or two comps can be misleading. An outlier sale (distressed seller, buyer overpaid, agent misreported) can skew your ARV dramatically. Use at least 3 to 5 comparable sales and give more weight to the middle of the range.
Ignoring market trends
Comps from 6 to 12 months ago may not reflect current values. In an appreciating market, older comps are too low. In a declining market, older comps are too high. Always check recent sales and price the direction of the market into your ARV.
The financial impact
Let us quantify what a $20,000 ARV error looks like on a real deal:
| Your ARV ($280K) | Actual ARV ($260K) | |
|---|---|---|
| Buyer's MAO (70% rule minus $40K repairs) | $156,000 | $142,000 |
| Your contract price | $140,000 | $140,000 |
| Available spread | $16,000 | $2,000 |
| Your assignment fee | $16,000 (expected) | $2,000 (reality) or $0 (deal dies) |
A $20K ARV error turned a $16,000 deal into a $2,000 deal or a dead deal. And that is just the direct financial impact. The indirect cost — lost buyer trust, wasted time, potential earnest money loss — makes it worse.
How to get your ARV right
- Use the right comps. Within 0.5 miles, sold in the last 6 months, similar size (within 200 SF), similar bed/bath count. Expand criteria only if you cannot find enough comps within these parameters.
- Make proper adjustments. Use comp analysis tools that account for differences between your subject property and each comp.
- Use multiple data sources. MLS data is the gold standard. Cross-reference with public records and tax assessments to catch errors.
- Consider the rehab level. A comp that sold fully renovated with high-end finishes supports a different ARV than one with basic rental-grade updates. Match the comp condition to your buyer's likely rehab scope.
- Build in a margin of error. If your comps suggest an ARV of $270K to $290K, use $270K or $275K, not $290K. Conservative pricing protects everyone.
- Get a second opinion. Run your comps by an experienced investor or agent in the area. Fresh eyes catch errors you missed.
What to do when you discover the error
If you have already contracted a property and realize your ARV was wrong:
- During option period: Terminate if the corrected numbers do not support the deal. Lose the option fee, save the earnest money.
- After option period but before assignment: Renegotiate with the seller for a lower price using the corrected comps as justification. Some sellers will agree rather than restart with a new buyer.
- After assignment: Be transparent with your buyer. Show them the updated comps and negotiate the assignment fee down. A smaller fee is better than a dead deal and a damaged relationship.
Bottom line
A wrong ARV cascades through your entire deal. Overestimating kills deals and reputations. Underestimating costs you money. Invest the time to pull accurate comps, make proper adjustments, and use conservative estimates. Your analysis accuracy is the single most important factor in your long-term success as a wholesaler.