What ARV actually means, and who decides it
After-repair value is not your forecast of the finished price. It is an appraised value, produced under a stated condition, by someone who is not you.
The short version
ARV stands for after-repair value: what a property is worth once the planned work is finished.
Most explanations stop there, and that is the part that gets investors into trouble. On a deal that is actually being financed, ARV is not your estimate of the finished price. It is an appraised value, produced by an appraiser you did not hire, under a condition stated on the report, from comparable sales of homes that are already finished.
Two consequences follow, and they are the whole reason this page exists.
Your rehab budget is not an input to it. Spending $120,000 does not add $120,000, and on some line items it adds close to nothing.
And the number is not final when you buy. It is confirmed later, against the work you actually did.
The words doing the work are “subject to”
An appraisal can be written two ways. It can value the property as it stands today, or it can value the property on the condition that described work gets completed.
Fannie Mae's Selling Guide puts the second one plainly: where the condition of the improvements affects safety, soundness or structural integrity, "the appraisal must be 'subject to' completion of the specific repairs or alterations". Where the issues are minor and do not affect those things, "the appraisal report must be completed 'as-is'".
That is what an ARV is. A subject-to value, tied to a specific described scope, not a general opinion about what the neighbourhood might do.
It is worth being precise about the source. Fannie Mae writes the rulebook for conventional lending, not for private capital, and private lenders set their own requirements. We are quoting it because it is the clearest published statement of what the phrase means, and because the mechanic is the one private lenders borrowed. What varies between lenders is the threshold, the paperwork and who signs off. What does not vary is the logic: a value granted on a condition is only worth what the condition is worth.
The number gets checked after the work, not just before it
The part investors are most often surprised by is that the file comes back around.
Fannie Mae's own instrument for this is the completion report: "The Appraisal Update and/or Completion Report (Form 1004D) is used to update an appraisal or provide confirmation that the requirements or conditions in an appraisal report have been met (such as completion of construction or repairs)."
Read that as the general shape rather than as one form number. A subject-to value is provisional. Something later has to confirm that what was described actually happened. Different lenders do it with different documents and different inspectors, and on a private-capital flip the confirmation often arrives draw by draw rather than once at the end.
The practical version: the scope you describe at the start is a commitment, not a wish list. Trimming it mid-project to protect margin is exactly the sort of change that can move the value the loan was sized against.
Why your ARV and the appraiser's ARV disagree
When the two numbers come apart, it is almost always one of four reasons.
The appraiser is reading comparable sales, and you are reading a budget. Comparables are finished homes that already sold nearby. If nothing in the area has sold at the level your finished house would sit at, the value has nothing to attach to, however good the work is.
Not all spending converts. Kitchens, baths, layout, permitted square footage and curb appeal are read by the market. Roofs, panels, sewer laterals and foundations are usually read as a house that is not broken rather than a house that is better. Both may be necessary. Only one of them argues for a higher number.
Unpermitted work can subtract. Square footage added without permits may not count as living area at all, and a finished space that cannot be shown as legal is a liability in the file rather than an asset.
And ceilings are local. Streets, school boundaries and product types have practical price ranges, and a renovation rarely lifts a property clear of the range its street sits in.
The 70% rule and an ARV ceiling are not the same thing
One is a rule of thumb you apply to yourself. The other is a limit a lender applies to the loan. They are easy to conflate and mixing them up is the fastest way to misprice a deal.
The 70% rule is an investor screening convention. Maximum offer is roughly 70% of ARV, minus the rehab budget. It leaves about 30% of the finished value to absorb financing, carry, commissions and profit. It is a filter for deciding what is worth a second look. Nobody lends against it and no underwriter checks it.
An ARV-based ceiling is a lending term. It is the share of the after-repair value a lender is willing to have exposed. Our fix and flip programme publishes an ARV max of up to 75%, and that ceiling interacts with a loan-to-cost limit on the other side, so which of the two binds depends entirely on your purchase price and rehab budget.
They can point in opposite directions on the same deal. A property bought well under the 70% rule can still be constrained by loan-to-cost, because the lender is sizing against what you are actually spending, not against what you could have offered. Our fix and flip calculator shows both ceilings side by side and tells you which one binds first, which is more useful than either number alone.
What to have ready so ARV is not what kills the deal
Four things, and none of them require a lender relationship to prepare.
A written scope of work, priced by line, with what is structural and what is cosmetic separated. This is the document the subject-to value attaches to, and a vague one produces a cautious number.
Your own comparable sales, chosen honestly. Finished homes, near the property, recently sold, at the specification you are actually building to. Bringing three defensible comparables is worth more than arguing about the appraisal after it lands.
Permit status for everything you plan to touch, especially anything that changes square footage or use.
And a view on what happens if the value comes back under. Whether that means more cash at closing, a reduced scope or walking away, deciding it in advance is the difference between a decision and a scramble.
If you want to see how the ceilings interact before you have any of this, the fix and flip calculator on this site solves them from your own purchase price, rehab budget and ARV.
Sources
The appraisal quotes above are from the Fannie Mae Selling Guide, section B4-1.2-05, on verifying completion and postponed improvements: the "subject to" completion language, the "as-is" instruction for minor conditions, and the description of the Appraisal Update and/or Completion Report.
That guide governs conventional lending. NexWin Capital Corp. places loans with private and specialty lenders who set their own appraisal requirements, and it is quoted here because it states the mechanic clearly, not because it binds any particular lender on your deal.
Everything else above describes how after-repair value is commonly treated in practice. Thresholds, forms, inspection cadence and leverage caps vary by lender and by property, which is exactly why the article asks you to get them in writing rather than quoting a number here.
NexWin Capital Corp. arranges financing through third-party lenders and does not set rates. Nothing here is an offer or commitment to lend, nor legal, tax or appraisal advice.
The programs behind the numbers.
Construction Loans
Capital structured around draws, trades, and real site sequencing.
See typical termsFix & Flip Loans
Acquisition + rehab capital sized around ARV and exit strategy.
See typical termsBridge Loans
Bridge capital up to 75% LTV, a typical ~14-business-day close for qualified, complete files.
See typical terms
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NexWin Capital Corp. (NMLS ID 2743839 · DFPI License No. 60DBO-211586) brokers loans through licensed lending partners. All funding is subject to borrower profile, collateral, documentation, and lender criteria. Nothing on this page is an offer or commitment to lend. Rates, terms, and program availability vary and may change without notice.