Underwriting 101: ARV and the Narqix Golden Standard

Why ARV is the most important number

Every offer starts with one question: what will this house be worth after it is fixed up? That is the ARV. If the ARV is too high, the client pays too much and no buyer will take the deal. If it is too low, the offer insults the seller and the deal is lost to a competitor.

Every other number (repairs, MAO, the assignment fee, the buyer's profit) depends on the ARV. Get it right and the rest is arithmetic.

Key words

• Comp (comparable sale): a nearby, similar home that recently sold. We use it to estimate value.
• Subject property: the house we are valuing.
• PPSF (price per square foot): sale price divided by living area in square feet.
• Renovated comp: a comp that sold in updated condition. Used for ARV.
• As-is comp: a comp that sold in poor or original condition. Used to sense-check the current value, not the ARV.
• Active and pending listings: homes for sale now, or under contract but not yet closed. Used to check our ARV, never as the main evidence.

Step 0: Know the neighborhood class

Before pulling comps, place the neighborhood in a class, using the local median home value for the city or county:

Class	Typical value vs. local median	Usual buyer
A	At or above the median	Flippers (retail buyers will pay for updated homes)
B	Around 50% to 60% of the median	Flippers and landlords
C	Below about 50% of the median	Mostly landlords (buy and hold)

Class tells you which buyers will want the deal and which offer method to use (see Making Offers). It also warns you: in C-class areas, renovated sales are rare, and ARV is less reliable.

Step 1: Describe the subject property

Collect these facts from public records, the seller and the handoff notes:

• Property type and style (single family ranch, two-story, split level, townhouse, duplex)
• Living area in square feet (above-grade; note finished basements separately)
• Bedrooms and bathrooms
• Year built
• Lot size
• Garage or carport
• Special features (pool, basement, busy road, backs onto commercial land, flood zone)
• Current condition and the planned repair tier

Step 2: Build the comp box (start tight)

These are the Narqix Golden Standard comp rules. Start inside the tight limits. Only widen one rule at a time, and only when you cannot find at least 3 good comps. Write down every rule you widened.

Rule	Start with	Widen up to (maximum)
Sold date	Last 3 to 6 months	12 months (note the market trend)
Distance	0.5 mile (0.25 mile in dense city areas)	1 mile in suburbs; up to 2 to 3 miles in rural areas
Boundaries	Same neighborhood, same side of major roads, highways, rail lines, rivers; same school district	Never cross a boundary that clearly changes value
Property type and style	Same (ranch with ranch, two-story with two-story)	Similar style only if no match exists
Year built	Within 5 years	Within 10 to 15 years
Living area	Within 10% to 15% of the subject	Within 20%
Bedrooms	Same count	Plus or minus 1, with an adjustment
Bathrooms	Same count	Plus or minus 1, with an adjustment
Condition	Renovated, similar finish level to the planned rehab	Never use as-is sales for ARV
Sale type	Normal, arm's-length sale	Exclude family transfers, foreclosure auctions and unusual sales

Step 3: Choose the best 3 to 5 comps

• Aim for at least 3 renovated sold comps. Five is better if they are all strong.
• Prefer the most recent and the closest.
• If one comp is far above or below the others with no clear reason, leave it out and note why.
• Look at the photos when available. "Renovated" in the description is not proof.

Step 4: Calculate PPSF and the ARV

For each comp:

PPSF = sale price ÷ living area (sqft)

Then:

Average PPSF = the sum of the comps' PPSF ÷ the number of comps

ARV = subject living area × average PPSF

Round the result down to a clean number (for example to the nearest 5,000).

Step 5: Adjust for differences

PPSF already handles size. Adjust for the other important differences, in the direction of the subject:

• Finish level: if the planned rehab will be simpler than the comps' finishes, deduct value. If the rehab will be clearly better and the area supports it, a small increase (up to 5% to 10%) may be justified, but only with the client's approval.
• Bedrooms and bathrooms: a missing bathroom or bedroom compared with the comps lowers value.
• Garage, pool, basement, lot: each can matter in some markets and not in others.
• Location issues: busy road, commercial neighbors, power lines, flood zone. These lower value.

Adjustment amounts vary a lot by market. Use your client's standard adjustments. If your client has none, flag the difference in your notes and let acquisitions decide, rather than guessing a number.

Step 6: Check the ARV

1. Active and pending check: compare with similar renovated homes for sale now. If your ARV is higher than every similar active listing, it is probably too high. If it is in line with or slightly below them, it is likely sound.
2. Trend check: if the market is falling, comps from 6 months ago overstate today's value.
3. Buyer check: ask dispositions what recent buyers in this area paid and expected.
4. Professional opinion: when your client has access to a local agent or appraiser, their view is valuable.

Step 7: Rate your confidence

Confidence	When
High	3 or more renovated comps inside the tight box, consistent PPSF, actives agree
Medium	You widened one or two rules, or PPSF varies by more than 10%
Low	Few or no renovated comps, rural or unusual property, or actives disagree

Always write the confidence rating next to the ARV. Low confidence means the client reviews before any offer.

Worked example

Subject: single family ranch, 3 bedrooms, 2 bathrooms, 1,450 sqft, built 1979, no basement, attached 1-car garage. B-class neighborhood. Seller describes original kitchen and bathrooms.

Comps considered

Comp	Details	Sold	Price	Use?
A	Ranch, 3 bed, 2 bath, 1,380 sqft, built 1976, renovated, 0.3 mile, 1-car garage	2 months ago	241,500	✅ Yes
B	Ranch, 3 bed, 2 bath, 1,520 sqft, built 1982, renovated, 0.4 mile, 1-car garage	4 months ago	258,400	✅ Yes
C	Ranch, 3 bed, 2 bath, 1,410 sqft, built 1975, renovated, 0.2 mile, 1-car garage	5 months ago	243,225	✅ Yes
D	Ranch, 3 bed, 2 bath, 1,450 sqft, original condition, 0.3 mile	3 months ago	205,000	❌ As-is sale. Useful for current value only.
E	Two-story, 4 bed, 3 bath, 2,100 sqft, renovated, 0.4 mile	2 months ago	330,000	❌ Different style and too large
F	Ranch, 3 bed, 2 bath, 1,460 sqft, renovated, across the highway in another school district	1 month ago	289,000	❌ Crosses a value boundary

The math

Comp	Price	Sqft	PPSF
A	241,500	1,380	175.00
B	258,400	1,520	170.00
C	243,225	1,410	172.50
Average			172.50

ARV = 1,450 × 172.50 = 250,125, rounded down to 250,000.

Adjustments and checks

• All three comps have the same bed and bath count and garage. No adjustment needed.
• The client's buyers usually do a mid-grade rehab, similar to the comps. No finish adjustment.
• Two similar renovated homes are listed for sale at 255,000 and 265,000. One is pending at 249,000. Our ARV sits just under the active listings: sound.
• Confidence: High.

How to explain this ARV to a seller

"Three homes very close to yours, same size and layout, sold in the last five months after they were fully updated. They sold for between about 241,000 and 258,000. When we compare them by size, a fully updated version of your home would likely sell for around 250,000. That is the starting point. From there, we look at what the updates would cost."

Why it works: the seller hears real facts about their own street, not a mystery number.

Practice: which comps would you keep?

Subject: two-story, 4 bed, 2.5 bath, 2,050 sqft, built 1998, suburban, A-class.

1. Two-story, 4 bed, 2.5 bath, 1,980 sqft, built 2001, renovated, 0.4 mile, sold 3 months ago. → Keep.
2. Ranch, 3 bed, 2 bath, 1,600 sqft, built 1995, renovated, 0.2 mile. → Reject: different style and size.
3. Two-story, 4 bed, 2.5 bath, 2,150 sqft, built 1996, original condition, 0.3 mile. → Reject for ARV: as-is sale.
4. Two-story, 4 bed, 3 bath, 2,250 sqft, built 2003, renovated, 0.7 mile, sold 8 months ago. → Maybe: widened distance and date, and one extra bath. Use only if you lack better comps, and note it.
5. Two-story, 4 bed, 2.5 bath, 2,000 sqft, built 1999, renovated, 0.5 mile, but in a gated golf community. → Reject unless the subject is in the same community.

Common mistakes

Mistake	Fix
Using the highest sale "because it's possible"	Use the average of the best comps, rounded down
Ignoring the sale date in a changing market	Prefer the newest comps and check the trend
Treating "updated" listings as fully renovated	Check photos and finish level
Forgetting basements are often not counted in living area	Compare above-grade area with above-grade area
No confidence rating	Always add one

Check yourself

1. What is the starting distance and sold-date rule in the comp box?
2. Write the formula for ARV using PPSF.
3. Why is an as-is sale rejected as an ARV comp?
4. Your ARV is higher than every similar active listing. What does that tell you?
5. When must the client review the ARV before any offer?

Answers

1. Within 0.5 mile (0.25 in dense city areas), sold in the last 3 to 6 months.
2. ARV = subject living area × average PPSF of the best comps.
3. It shows value in poor condition, not after repairs.
4. It is probably too high. Re-check comps and adjustments.
5. When confidence is Low (few renovated comps, unusual property, or actives disagree), and any time you are unsure.

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