Mistakes

Overestimating after repair value (ARV) kills deals

Overestimating a property's after-repair value (ARV) is a primary reason deals fall apart, as it leads to offers that are too high for profitable resale. The habit to prevent this is rigorous, conservative comparable sales analysis, always assuming a margin of error.

October 8, 2026 · 3 min read

The ripple effect of a high ARV

When you overestimate the ARV, every subsequent calculation is flawed. Your maximum allowable offer (MAO) will be too high, meaning you overpay for the property. This immediately squeezes the profit margin for your end buyer, whether he or she is a flipper or a buy-and-hold investor.

A deal with an inflated ARV is difficult, if not impossible, to assign. Cash buyers, especially experienced flippers, will quickly spot the discrepancy. They are doing their own due diligence, and if your numbers do not align with theirs, they will walk away, leaving you with a contract you cannot close.

How to accurately comp properties

Accurate comparable sales analysis is the foundation of good deal evaluation. Focus on recent cash sales of properties that are truly comparable in size, bed/bath count, and lot size. Look for sales within the last six months, preferably closer to three, and within a half-mile radius, or closer in dense urban areas.

Do not just pull numbers from Zillow. Go to the public record, or use investor-specific tools that show cash sales. Adjust for condition where possible, but always lean conservative. If a property with a new roof sold for X, and your subject needs a new roof, you cannot assign the same ARV without accounting for that cost.

Why you should be conservative

The market can shift quickly, and unexpected costs always arise during a rehab. Being conservative with your ARV estimates provides a buffer against these uncertainties. It means you build in a margin of safety for your end buyer, making your deals more attractive. A slightly lower projected ARV that is achievable is far better than an optimistic one that is not.

Your buyers appreciate honesty and realistic numbers. If you consistently present deals with solid, conservative ARVs, you build trust and become a preferred source for their acquisitions. This trust is invaluable in the long run.

The danger of 'what if' renovations

Avoid factoring in speculative renovations or upgrades that are not standard for the neighborhood. Just because a house could have a gourmet kitchen or a third bathroom does not mean the market will bear the cost, or that your end buyer will perform those specific upgrades. Stick to what is common and expected for a renovated house in that specific area.

Base your ARV on what the house will realistically sell for after a standard, clean, and functional renovation, not a luxury overhaul unless the comps explicitly support it. The goal is to maximize your buyer's profit on his or her minimum spend, not to imagine the perfect dream home.

Building in a buffer for market shifts

Always consider that market conditions might change between your acquisition and your buyer's resale. Interest rates could rise, inventory could increase, or buyer demand could soften. A conservative ARV helps cushion against these potential shifts. It protects your buyer and, by extension, your ability to close the assignment.

Suppose a hypothetical property's ARV could be $200,000, but there is some uncertainty. It is often safer to calculate your MAO based on $190,000. This $10,000 buffer might be the difference between a successful assignment and a dead deal.

Questions people ask

What if no exact comps exist?

Expand your search radius slightly or look for similar style homes, adjusting for size and features. Consider the cost to build new as a very rough upper limit, but always prioritize recent sales of existing homes.

Should I adjust comps for market conditions?

Yes, if the market is clearly cooling, adjust your ARV downwards, even if recent comps are higher. If it is heating up, you can be slightly less conservative, but still err on the side of caution.

How many comps do I need?

Aim for at least three to five strong, recent, and highly comparable sales. The more data points you have, the more confident you can be in your ARV estimate.

How can I verify a flipper's ARV estimate?

Ask your flipper buyer for his or her comps and analysis. Compare them to your own. If there is a significant discrepancy, discuss the differences and agree on a realistic number before proceeding.