What is the standard when using comparables based on the ARV?

Question

I'm in Atlanta and other wholesalers are bringing me properties with their ARV.  So, I research what they think the ARV is and I'm not seeing what they are seeing.  The hard money lenders I use require an appraisal before they back anything.  I'm use to going back 3 months of properties sold when I'm looking for comparables, and not exceeding a mile in distance from the subject property.  I realize that I may have to go further in distance or going back  6 months when property was sold.  Are there any other indicators that I need to use in determining the ARV for a particular property?     Example:  subject property 80K.  ARV: 200k  After my research im finding property that sold for 150K or less and sometimes not even that high.  It may 100 to 115k.  Am I overlooking something?  We have areas that are going through major changes, but I can't justify buying the property if the ARV isn't there.   So again, am I over looking something that's causing me to not see what they see?

Bob Okenwa · Answer

Simple piece of advice: never trust wholesalers when they tell you what the ARV is. Always do you own research as wholesalers have an inclination to inflate ARVs and underestimate rehab costs to make deals look better than they really are.

As far as determining ARV, it's more of an art form than anything scientific. Someone may value a bedroom at 5k, another at 7k, and so on. Do your best to find as many like-for-like properties (same beds/baths, close sq. footage, etc) as you can and go from there.

Eric M. · Answer

Shocking!!!! Wholesalers don't give accurate numbers??? You are kidding me!

Grant Rothenburger · Answer

@Vincent Felder

You are likely not missing anything. Wholesalers (especially shady ones) will inflate ARV and decrease the reno budget to catch an unsuspecting investor and move their deals.

Kuba F. · Answer

The standard is location, time of sale, sameness, correct value adjustments to name the most important.

For location, within delineated neighborhood boundaries is more important than distance.  Those may include parks, train tracks, major roads, school districts, PUD, waterways.

Sameness means you want to compare properties that are as close to each other in every way as possible so as to make the fewest adjustments.

And value adjustments may or may not be important.  In most places it's bedrooms and bathrooms, garages, basements, pools, views. For me in SoCal land values are hugely important, but probably not where you are.

Your eventual comps should have very little variety in $/sqft.  So if you see a huge discrepancy, then you have to rationalize it.  Are all of them finished?  Are they in the same school district? Are some of them on a busy road, etc etc.

Eddie Cottingham · Answer

@Bob Okenwa makes some great points. Also, while some purposely inflate ARVs keep in mind that most wholesalers aren't actually doing renovations and such so they simply lack the skills to determine an accurate rehab cost as well. So no matter how a deal comes at you, always see if the numbers make sense.

What is the standard when using comparables based on the ARV?

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