Calculating ARV, Inventory Levels, and Comps

[Samori Diallo]

Hello,

I am currently in my education phase, soon becoming a wholesaler. Can someone please clarify the following for me:

1. I see a lot of people explaining their calculation methods for ARV without inspecting the physical condition of the properties. How accurate can an arv analysis be without going out and seeing the home yourself or sending a trusted inspector?
2. How does one go about finding out what the inventory levels and sub-categories are in a target market? Do we get this information from Real estate agents, checking the mls, or by some other means.
3. Lastly, how does one learn to make the adjustments when doing comps for homes that are not exactly the same makeup? Is it something you learn over time from doing it, or is there training on that anywhere? I believe that is a crucial skill to master. (ex. 3br 2bt and a 5br 3 bt) Thanks! I look forward to reading the replies.

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@Samori Diallo

1. I personally prefer to walk through if it's possible. When you get into doing auctions, submitting multiple offers, or odd situations, it just might not be possible to inspect the property. In that case, you have to do as much due diligence as possible.

Without walking through the property and understanding how rehab works (so you know how much it's actually going to cost) it's going to be difficult to calculate an accurate ARV. I never like to estimate or use any "-ometers" - I want to see the numbers and the potential with my own eyes. On the surface level, you can compare the price of the home with others in the sub-division. For example, if you find a property that you're able to get under contract for $100K and after-rehab condition comparables have around $210K, the home most likely has some potential. Speculate based on the pictures that it needs about $40K of work (which you'll learn through experience), and you might have a good deal.

2. Inventory levels are a matter of opinion. When people ask me as an agent "how is the market" I usually say, "it depends" and find out what they actually want to know.

The best source for inventory is the MLS in my opinion. There are some websites I've come across the create visual representation of statistics by scraping MLS data that might be useful. I can't recall the names of any right now.

3. I wanted a solid answer to this question SO bad when I was getting my real estate license.

The fact of the matter is making adjustments is both a science AND an art. Even an appraisal is someones opinion based on information that is available to them.

Depending on how specific you want to be, you can roughly determine the value of particular upgrades such as countertops and a pool. I know a lot of people that simply use the 4 methods of central tendency: mean, median, mode, and range to come up with their numbers for price per sqft. and such. It's really easy to add/subtract bedrooms and garages once you've determined your price per sqft.

Here is a really good article on BP about making adjustments: http://www.biggerpockets.com/renewsblog/2013/09/08/determine-value-property-adjusting-values-comps/.

I hope this helps!