An offer is arithmetic, not nerve. You need three numbers: what the house is worth fixed up (the ARV), what it costs to make it that way (repairs), and the margin you refuse to give away. Everything else is negotiation theatre. This walks the arithmetic, shows how appraisers actually choose the comparable sales the ARV rests on, and shows how to find sale prices free, including the trick for states where the price is never written down.
Educational information only. Not investment, legal, tax, or appraisal advice, and nothing here is a promise that any number produces a profit.
The formula, and what it is honestly worth
The convention most operators start from:
Maximum offer = (ARV × 0.70) − repairs
A house worth $200,000 fixed up, needing $30,000 of work, gives ($200,000 × 0.70) − $30,000 = $110,000.
Be clear about what that 0.70 is. It is not a law, a regulation, or a standard anyone enforces. It is a rule of thumb, and the 30% it holds back is not profit. It is absorbing all the things beginners forget to subtract: closing costs on both ends, agent commission on the sale, holding costs while the work happens, financing costs, and the gap between the repair estimate and the repair bill. What is left after those is the margin, and it is smaller than 30% every time.
The formula is only as good as the two numbers you feed it. Both of those are where the real work is.
1. The ARV is a claim about comparable sales
ARV means after-repair value: what the house sells for once the work is done. It is an estimate built from sales of similar houses nearby, and an automated estimate off a listing site is a starting point, not an answer.
The useful thing is that the rules professionals use are public. Fannie Mae's Selling Guide tells appraisers how to choose comparable sales, and you can apply the same tests yourself:
- Recency. "Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales" (Fannie Mae Selling Guide B4-1.3-08).
- Distance, measured honestly. The appraiser "must be specific with respect to the distance in terms of miles and include the applicable directional indicator (for example, '1.75 miles NW')," and that distance is "measured using a straight line between the properties" (same source). Straight line, not driving distance, and a comp across a highway or a school-district line can be a mile away and in a different market.
- Similarity. Comparables "should have similar physical and legal characteristics when compared to the subject property," including "site, room count, finished area, style, and condition" (same source). The guide's framing is the useful part: comps should "be competitive and appeal to the same market participants," not be identical.
Three genuinely similar recent sales within a tight radius beat ten loose ones. If you cannot find three, that is information about the ARV's reliability, and the honest response is a wider margin, not a confident number.
What comps do not prove. A comparable sale tells you what one buyer paid for one house on one day. It does not prove your house will sell for that, and it does not account for a condition difference you have not seen. An appraisal is a licensed professional's opinion of value, and lenders order their own (CFPB). Your ARV is not an appraisal.
2. Finding what houses actually sold for, free
Sale prices reach the public record through the county, and how much you can see depends on where you are.
Where the price is recorded. Many counties publish sale prices through the assessor or the recorder's index, searchable by address or parcel number. That is the direct route, it is free, and it is the same data the paid services resell.
Where it is not. In some states the sale price is simply never written on the recorded document. That is a real and specific limitation, so do not assume the absence of a price means the sale did not happen. Rather than memorise which states those are, run the check: pull one recorded deed in your county and look at what is actually on it. If a price or a transfer tax appears, the route below works. If neither does, the price is not in the public record and you will need an agent, an MLS-based source, or a title company for sale data.
The transfer-tax route. Where a county levies a documentary transfer tax, the tax is stamped on the deed and the rate is set by statute, so the price can be recovered by arithmetic. In California the rate is "fifty-five cents ($0.55) for each five hundred dollars ($500) or fractional part thereof" of the consideration (Cal. Rev. & Tax. Code § 11911). So:
price ≈ (transfer tax ÷ 0.55) × 500
A $220 documentary transfer tax implies roughly $200,000 of consideration.
The caveat that matters, and almost nobody states it. The same statute taxes the consideration "exclusive of the value of any lien or encumbrance remaining thereon at the time of sale." If the buyer took the property subject to an existing loan, that loan is not in the taxed amount, so the price you compute is the cash consideration and can be well below what the property actually traded for. Rates also vary, because cities may add their own. Treat a computed price as a strong signal, not a settled fact, and check your own county's rate before you divide.
3. The repair number is a range until somebody stands behind it
Your repair figure is the number most likely to be wrong, and it is wrong in one direction.
Before a contractor walks it, you are bracketing, not estimating. Price the big irreversible items first, because they decide whether a deal is a deal: roof, foundation, plumbing and electrical systems, HVAC. Cosmetics rarely change the answer. Cosmetics change the schedule.
Two disciplines are worth more than precision here. Carry a contingency, because the estimate is a guess about things you cannot see behind a wall. And write the number down before you fall in love with the house, so you can tell later whether you revised it because you learned something or because you wanted the deal to work.
4. Then hold the number
The arithmetic is the easy half. The hard half is that the number has to survive contact with wanting the deal.
Two failures show up constantly, and they are opposites. One is refusing to walk away from a deal you are already deep into, throwing good money after bad because leaving means admitting the loss. The other is the reverse: taking a small certain win early, cutting a deal loose cheap to lock a quick fee before the plan said to. That second pattern is documented in investor behaviour as the disposition effect, the tendency to realise gains too early and hold losses too long (Odean, "Are Investors Reluctant to Realize Their Losses?", Journal of Finance, 1998).
The defence for both is the same and it is procedural: decide the walk-away line before you are emotionally in, write it down, and treat moving it as a decision you have to justify rather than one you drift into.
Run it in this order
- Pull three to five recent, close, genuinely similar sales. Apply the recency, straight-line-distance and similarity tests above.
- Set the ARV from those, and widen your margin if the comps are thin.
- Bracket repairs, big irreversible items first, and add a contingency.
- Run
(ARV × 0.70) − repairsas a starting ceiling, adjusting the multiplier for what your market and your costs actually are. - Write the walk-away number down before you talk to anyone.
- Verify what is already recorded against the house before you commit (the four free records) ... a lien does not care what your offer arithmetic said.
What none of this replaces
An appraisal, a contractor's written scope, a title professional, or an attorney. This is how to arrive at a defensible number yourself and know which parts of it are soft. It is not a valuation, and no formula here is a prediction that a deal will be profitable.
Frequently asked questions
Is the 70% rule an actual rule?
No. It is a widely used convention, not a law or a standard, and the 30% it withholds is absorbing closing costs, commissions, holding costs, financing and repair overruns, not delivering profit. Operators routinely adjust the multiplier for their market and cost structure.
Can I use an online estimate as my ARV?
As a starting point. An automated estimate is a model's output over the data it has, and it cannot see condition. Build the ARV from comparable sales you have checked against the recency, distance and similarity tests, and treat the automated figure as a sanity check rather than the answer.
Why can't I find the sale price for a property?
Because in some states the price is never written on the recorded document. Check one recorded deed in your county: if you see a price or a documentary transfer tax, the data is there. If you see neither, the price is not in the public record and you will need an MLS-based source, an agent, or a title company.
How accurate is backing the price out of the transfer tax?
Close, with one systematic bias. The tax is levied on consideration excluding any lien or encumbrance remaining at the time of sale, so where a buyer took the property subject to an existing loan, the computed figure reflects the cash consideration and understates the trade. Local rates can also add to the state rate.
What if I can only find one comparable sale?
Treat that as a statement about confidence rather than a reason to proceed with a precise-looking number. Widen the radius or the time window and note that you did, or widen your margin to absorb the uncertainty.
Sources and disclaimer
- Comparable-sale selection, recency, distance and similarity ... Fannie Mae Selling Guide B4-1.3-08
- What an appraisal is and who orders it ... CFPB
- Documentary transfer tax rate and the lien exclusion ... Cal. Rev. & Tax. Code § 11911
- Disposition effect ... Odean, Journal of Finance, 1998
Educational information only. Not investment, legal, tax, or appraisal advice. Statutes, tax rates and county practice vary by jurisdiction and change over time; verify against your own county and state before relying on any of it.