Estimating ARV and Rehab on a Foreclosure

The single biggest mistake new foreclosure buyers make is overpaying because they guessed at two numbers: after-repair value (ARV) and rehab cost. Get these right and the rest of the deal takes care of itself.

After-repair value (ARV)

ARV is what the home will sell for once it is fixed up, not what it is worth today. Estimate it from recent sales of comparable, renovated homes in the same neighborhood — similar size, age, and condition — within the last few months. The market-value figure shown on each listing here is a useful anchor, but local comps are the real test.

Rehab cost

For a light cosmetic refresh, many investors budget roughly $20–$30 per square foot; a full gut renovation can be several times that. Walk the property if you can, and always pad your estimate — foreclosures hide surprises behind the walls.

The bid formula

A common rule of thumb is the 70% rule: your maximum bid should be about 70% of ARV, minus rehab. So a home with a $300,000 ARV needing $40,000 of work suggests a maximum around $170,000 (300,000 × 0.70 − 40,000). Adjust the percentage for your market, holding costs, and risk tolerance — and never let auction adrenaline push you past it.