Within real estate and renovation loans, after renovation value (also known as after repair value) is the value of a home after you’ve completed renovations.
It takes into account the total cost of your updates and the current value of the home. This is one of the most important terms to understand when it comes to qualifying for renovation loans.
Your property’s after renovation value is important to consider when you’re thinking about making changes - it determines your borrowing power if you’re applying for a loan. Renovation loans like RenoFi Loans, FHA 203ks, Fannie Mae Homestyles, construction loans, and more are based on the ARV.
But even outside of that, most people who renovate their homes want to know that they’re going to get a good ROI, especially if they’re buying a fixer upper or if they’re a real estate investor flipping homes.
If you’re paying a lot of money to get a home addition, new kitchen, or ADU, you want to know that your home is going to increase in value.
We’ll dive in and explain everything you need to know about after renovation value, including how to calculate it, when to use it, and things to keep in mind when using ARV as a homeowner.
What Is After Renovation Value (ARV)?
ARV, when it comes to renovation loans, is a defined value determined by an “as-completed” appraisal. What does ARV means “after renovation value”, and it is the estimated value of your home after your renovation is complete. Estimating your home value after a renovation is done by using the current value of your home, plus the added value of your planned renovations. In this equation, factors such as the property’s current condition, the scope of planned improvements, and market conditions will all play a role.
However, many homeowners or real estate investors will also approximate the ARV through taking an estimate of a home’s current value and adding the cost of renovations. This value can be hard for the average homeowner to gauge, because generally you won’t get a 100% ROI from most renovation projects, ie., your future home value will be slightly less than the cost of your repairs plus the current value.
With most renovation products on the market, homeowners can borrow at least 80% of your home’s after renovation value.
With a RenoFi Loan, you can borrow up to 90% of their home value after renovation — giving you access to the most money possible for your project.
To apply for a renovation loan, you can’t just use an estimate you came up with yourself, you’ll need the value determined by an appraiser during the “as-completed” appraisal of your home and renovation plans. However, it’s important to remember that appraisers use a specific method to calculate your official after renovation value that’s much more in-depth.
While you can guess at what your ARV would be, official ARV calculations are the only ones that count when it comes to applying for a renovation loan.
An appraiser’s ARV formula is based on a variety of factors:
Property Location
Square Footage of House
Sales Comps of Recently Sold Neighborhood Homes
Proposed Renovation Plans
Cost Estimate From Contractor
- Material Cost
- Labor Cost
Purchase Price
Photos
And More…
Using these factors, your appraiser has a standard formula to determine your after renovation value before you even get started - solely based on your current home and your upgrade plans.
How to Calculate ARV
Estimated Current Home Value + (70% x Cost of Renovations) = ARV
(Remember, the 70% rule is a guideline stating that, on average, renovations return 70% of your initial investment, so you probably won’t get back the total cost of the remodel.)
Here’s a an example of ARV in real estate
Say you recently purchased your house for $450,000, and you’re remodeling your kitchen. Your estimate from the contractor for the project is $50,000.
To estimate your home value with improvements, a renovation value calculator will use this formula:
Your estimated ARV would be: $450,000 + (70% x $50,000) = $485,000.
Estimated Current Home Value + (70% x Cost of Renovations) = ARV
Remember, the 70% rule is a guideline stating that, on average, renovations return 70% of your initial investment, so you probably won’t get back the total cost of the remodel.
Here’s a quick example: Let’s say you recently purchased your house for $450,000, and you’re remodeling your kitchen. Your estimate from the contractor for the project is $50,000.
In this case where you are using a renovation loan like the RenoFi HELOC, your estimated ARV would be: $450,000 + (70% x $50,000) = $485,000.
Expert Tip: After renovation value can be hard for the average homeowner to gauge because you generally won’t get a 100% ROI from most renovation projects (ie., your future home value will be slightly less than the cost of your repairs plus the current value).
How the After Renovation Value (ARV) Works
Before applying for a renovation loan with any lender, you’ll be required to order an “as-completed” appraisal, which will determine your property’s ARV.
These appraisals are quite different from “as-is” appraisals, where appraisers are just looking at the current condition of the home.
With “as-completed” appraisals, appraisers are mostly focused on detailed renovation plans and their budget breakdowns, trying to evaluate exactly how much value each portion of the project will add value to the property.
The appraiser will also look at several “comps” of homes that have recently sold in your neighborhood, and compare them to your home to make a judgement. These are ideally homes that are similar in age, size and square footage to your home after the renovation.
Then, the appraiser will get back to you with your official ARV. Renovation loan lenders require this official appraisal and ARV determination to apply for a loan, and will use this number to determine your maximum borrowing power.
Constraints of the After Renovation Value (ARV)
Calculating home value, even for seasoned appraisers, is an art, not a science. Two appraisers could sit down and evaluate the same home, same renovation plans, and same comps, and come up with two different values.
This can be frustrating to homeowners, as thousands of dollars in borrowing power for a renovation loan can hinge on this value and this decision.
Not to mention, this home value is also dependent on the housing market, which constantly changes. Because it’s based on “comps” sold recently, short term price fluctuations will affect your ARV.
The quality and detail of your submitted documents can also heavily influence your ARV. If certain details aren’t included or specific enough, your appraiser may not be able to fully evaluate the increase in value. This is often conditional on the documents your contractor submits, like the budget breakdown, renovation contract, and renovation plans.
One important thing to note is that if you carry out your proposed renovations, the ARV determined by your appraiser before construction will stay relevant after the renovation.
If you get your required certificate of completion from an inspector that verifies that you completed your renovation, that ARV will hold true and you won’t need another appraisal.
Therefore, when you get your ARV before applying for a loan, you can have the peace of mind that as long as your plans are carried out, your home will likely be worth that amount in the near future.
The most money and lowest monthly payment for your renovation
Borrow up to 90% of your future home value with a RenoFi Renovation Loan
WHAT IS YOUR PROJECT?
Purpose of ARV in Home Value calculation
Your property’s after renovation value is super important to consider when you’re thinking about making improvements; it determines your borrowing power if you’re applying for a loan. Many traditional home improvement loans will only plug the current value of your home into the home value calculator, yielding a much lower loan amount. Home renovation loans like RenoFi Loans, FHA 203ks, Fannie Mae Homestyles, construction loans, and more are based on the after renovation value of your home, which boosts your borrowing power to help you tackle everything on your wishlist.
Before applying for a renovation loan with any lender, you’ll be required to order an “as-completed” appraisal, which will determine your property’s ARV. While you may know how to estimate your home value after renovation, your lender will not accept an estimate with your application — even if you used a credible renovation value calculator.
These appraisals are quite different from “as-is” appraisals, where appraisers are just looking at the current condition of the home. Your house value after renovation also helps lenders assess the risk associated with the loan based on your project’s potential ROI. If the estimate home value with improvements is higher, the more confident they will feel in investing in your home — and as a result, let you borrow more.
What an appraiser will “plug” into their Home Value Calculator:
- Neighborhood & Property Location (desirability of the neighborhood and proximity to local amenities and conveniences)
- Square Footage of your Home
- Current Market Trends (such as housing demand, neighborhood appreciation, and recent sales data)
- “Comps” in your Neighborhood (homes similar in age, size and square footage to your home after the renovation that have recently sold)
- Proposed Renovation Plans (quality of the improvements and the overall impact on the property’s value)
- Cost Estimate From Contractor
- Material Cost
- Labor Cost
- Purchase Price
- Photos
And More… The appraiser will then get back to you with your official ARV. Renovation loan lenders require this official appraisal and ARV determination to apply for a loan, and will use this number to determine your maximum borrowing power.
Maximizing ARV for Home Improvement Loans
If you’re not loving the number that your home remodel value calculator is showing you, there are some things you can do to maximize your ARV.
Follow the Market Trends: Research the current market trends in their area and talk to local real estate agents to better understand the current and future market conditions to make more informed decisions about your project.
Focus on Value-Add Improvements: Prioritize the renovations on your wishlist that have a high return on investment and can significantly increase the property’s value.
Get a Professional: Hire a professional appraiser to conduct a proper inspection in order to get an accurate assessment of the property’s current condition and potential ARV.
Expert Tip: It’s important to note that even for seasoned appraisers calculating an ARV is an art, not a science. Two appraisers could sit down and evaluate the same home, same renovation plans, and same comps, and come up with two different values. Not to mention, this value is also dependent on the housing market, which constantly changes. Because it’s based on “comps” sold recently, short term price fluctuations will affect your ARV.
To put yourself in the best position for a good appraisal, remember the impact that the quality and detail of your submitted documents can have. If certain details aren’t included or specific enough, your appraiser may not be able to fully evaluate the increase in value. This is often conditional on the documents your contractor submits, like the budget breakdown, renovation contract, and renovation plans.
Also, consider the fact that home renovation loan like RenoFi can connect you with seasoned appraisal specialists to help you get the most accurate appraisal for a home renovation loan.
Factors Influencing ARV for Home Improvement Loans
While you may be able to get an answer to how much is my home worth after renovations with a calculator, appraisers use a specific method to calculate an official after renovation value that’s much more in-depth. Official ARV calculations are the only ones that count when it comes to applying for a renovation loan.
Appraisers are mostly focused on detailed renovation plans and their budget breakdowns in an effort to try to evaluate exactly how much value each portion of the project will add value to the property. But to determine your after renovation value, there’s a number of factors that will influence the number your appraiser comes up with.
Get Help Calculating How Much Your House is Worth After Renovations
If you want to learn more about how to estimate your home value after renovation or talk to a renovation expert who can walk you through the process, RenoFi’s Renovation Advisors are here to help. Or take advantage of our home remodel value calculator to get started.
All RenoFi Loans utilize your home’s after renovation value to ensure you get all the perks from the best renovation loans on the market PLUS the ability to maximize your borrowing power.
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