ARV vs market value
Market value is what a property is worth today, in the condition it's in. ARV — after repair value — is what it will be worth once renovated. Both come from comparable sales; the difference is which sales you compare to. Market value uses sales in similar condition, ARV uses renovated ones. The gap between them is the renovation's contribution to value, which is not the same as what the renovation costs, and confusing the two is how projects lose money on paper before they start.
The same house, two numbers
| Market value | ARV | |
|---|---|---|
| Question it answers | What is this worth today, as it sits? | What will this be worth once the work is done? |
| Comps used | Sales in similar condition | Renovated sales at your finish level |
| Time frame | Now | At completion, typically 3–8 months out |
| Who relies on it | Purchase lenders, appraisers, tax authorities, ordinary buyers | Flippers, wholesalers, BRRRR investors, hard money lenders |
| Used to decide | Whether the asking price is fair | The maximum you can pay and still make money |
| Certainty | Observed — the comps have already happened | Forecast — it depends on work you haven't done and a market months away |
That last row is the one to sit with. Market value is a measurement with error bars; ARV is a prediction with error bars and execution risk. They deserve different amounts of confidence even when both are computed carefully.
Where the gap goes
A 1,600 ft² house in a neighborhood where tired sales run about $175/ft² and renovated ones about $241/ft²:
| Figure | Amount | From |
|---|---|---|
| Market value (as-is) | $280,000 | $175/ft² × 1,600 |
| ARV | $385,600 | $241/ft² × 1,600 |
| Gap | $105,600 | What renovating adds in value |
| Renovation cost | −$55,000 | What it costs to add it |
| Buying, holding and selling costs | −$42,140 | Title, interest, taxes, insurance, commission |
| Left over at full market price | $8,460 | What's yours if you pay $280,000 |
Buying at market value and renovating produces $8,460 for five months of work and real risk. That is the honest answer to "why can't I just pay what it's worth?" — the gap between ARV and market value is not margin, it is a budget that the renovation and the transaction costs have first claim on. The margin only appears when you buy below today's market value, which is what the maximum allowable offer exists to quantify.
See both numbers on a real property
Faro estimates a property's value from comparable sales and shows the target price your return actually requires, rather than the one the listing suggests.
Three cases where ARV isn't a useful number
- The house is already renovated. There is no gap to capture and no ARV distinct from market value. This is most turnkey rental purchases, and it's why rental underwriting runs on cash flow and cap rate rather than on ARV at all.
- The neighborhood's ceiling is close to the current value. In areas where finished houses sell for barely more than tired ones, renovation doesn't pay — usually a sign the local buyer pool is price-constrained rather than finish-driven. The comp spread tells you this before you commit.
- The work is structural rather than cosmetic. Foundation, roof, or system replacement restores value that condition had been suppressing rather than adding new value on top. The ARV is roughly the ordinary market value of a sound house — which can still be a good deal, but the arithmetic is "removing a discount", not "creating a premium".
Picking the right number for the decision
Negotiating with a seller? Market value. That's what they could get from someone else today, and it's the only number relevant to their alternatives. Quoting ARV in a negotiation tells the seller how much you expect to make.
Deciding your maximum offer? ARV, run through the 70% rule or a full cost model.
Sizing a purchase loan? Market value. Sizing a rehab loan or a cash-out refinance? ARV, discounted by the lender's own cap.
Underwriting a buy-and-hold rental? Neither, mostly. Value matters for the equity position, but the decision is made on rent, expenses and financing. Start with how to build a buy box instead.
Common questions
Is ARV always higher than market value?
For a property needing work, yes — otherwise the renovation destroys value and shouldn't happen. For a house already in good condition the two converge, and for one that's been recently and well renovated they are the same number. ARV only means something when there is a gap between the property's current condition and its neighborhood's standard.
Which number does a lender use?
It depends on the loan. A conventional purchase mortgage is underwritten on today's as-is value. A hard money or fix-and-flip loan is typically sized against ARV, capped at 65–75% of it. A BRRRR cash-out refinance uses an after-repair appraisal — genuinely an ARV, verified by an appraiser after the work is done, which is the moment your estimate gets marked to market.
Is the gap between them my profit?
No, and treating it that way is the single most expensive mistake in this area. The gap has to cover the renovation, the buying costs, months of holding costs, and 6% or so of selling costs before any of it is profit. On a typical flip the gap is roughly double the eventual profit — see ARV for fix and flip for the line-by-line version.
What about assessed value and Zestimate-style figures?
Assessed value is a tax calculation, often on a multi-year lag and sometimes deliberately set below market; it is not an opinion of value. Automated estimates are regression models trained mostly on recent sales, and they systematically miss condition — which is precisely the variable that separates ARV from market value. Neither is a substitute for a comp set on a property you're actually buying.
Related guides and calculators
How to calculate ARV
The five-step method, with a worked example and the adjustment table most investors skip.
How to find real estate comps
Where the sold data actually lives, and the six filters that separate a comp from a nearby house.
ARV for fix and flip
Matching your scope to your comps, and the sensitivity table that shows what a small ARV miss really costs.
How to calculate MAO
The maximum allowable offer formula, both versions, and how to pick the percentage honestly.
Both numbers, one address.
Faro values a property from real comparable sales and shows what it would take to make the deal work at your return target.
Estimates for analysis and educational use only — not financial, investment, tax, or legal advice. Verify every number independently before making a purchase decision.