How to search listings by ARV ratio in CapScout

The ARV ratio is the Fix & Flip version of a return threshold. Where a rental search asks for a minimum cap rate, a flip search asks for a maximum price: the listing has to sit at or below your percentage of what the home should sell for once it’s renovated. Homes priced above that line never appear in the results.

What exactly does the ratio test?

One comparison per listing: listed price ≤ your ratio × estimated ARV. With the ratio at 70% and an estimated ARV of $300,000, a home listed at $210,000 or less clears and one listed at $215,000 doesn’t.

Nothing else goes into the test. There’s no repair budget, no holding cost and no selling cost in it, because the search can’t see any of them. That makes it different from the 70% rule, which caps an offer at 70% of ARV minus repairs. At the same percentage, the search is the looser of the two.

To make the search behave like the rule, take your expected repairs as a share of ARV off 70%. If you’d budget repairs at around 15% of ARV, search at 55%. The 70% rule calculator works out the offer for one property once you have a repair figure.

How is the after-repair value estimated?

CapScout values each listing from comparable homes nearby: up to 20 within five miles from the last 270 days. When that finds too few, the search widens, and an estimate built that way can’t rate high confidence. The comparables include homes still for sale at their asking price and homes that have left the market, and the second kind count for more.

Before any arithmetic, the set is cleaned. The listing’s own entry is removed if it shows up as its own comparable, as is any comparable missing a price or a square footage. With five or more left, homes whose price per square foot sits far outside the rest are trimmed. The survivors are weighted by how closely they match the home, how recent they are and whether they’re still asking, and new construction counts for less, since it prices a different product.

From that set, the as-is value is the weighted median price per square foot, blended with the local market’s price per square foot and adjusted for the latest market trend. The after-repair value then moves up to the 70th percentile of the comparables, on the reasoning that a renovated home sells in the upper part of its range. The uplift is capped at 25% over the as-is value, so a few expensive outliers can’t carry the estimate away.

The as-is value is also checked against independent figures, including the US Census median home value for the ZIP code. When they disagree sharply, the estimate drops to low confidence and its range widens.

Where does the estimate stop?

• It’s an estimate with a range. Each ARV carries a confidence range. Fewer than three usable comparables, or a sharp disagreement with the independent figures, drops the confidence to low, and a set made up mostly of asking prices can’t rate high. A low-confidence result shows an “ARV uncertain” line with its likely range on the result card.
• The ratio uses the middle of the range. A home can clear your ratio on its estimate and fail it at the low end. Open the full analysis on anything you’d act on and look at the comparables.
• Condition is invisible to it. Listing data doesn’t describe condition reliably, so the search values every home as if renovated to the upper tier of its comparables. A gut job and a fresh flip at the same price clear the same ratio.
• Placeholder prices are labelled. A listing priced under 10% of its ARV is treated as a placeholder price, labelled and moved down the page instead of ranked as a giant spread.
• On-market, US, single-family and multifamily only, as with every CapScout search.

How do you choose a ratio?

Work back from your own numbers. The ratio has to leave room for repairs, the cost of buying and selling, holding costs over the project and the profit you need. Add those up as shares of ARV and subtract them from 100%; what’s left is the most you can pay. If repairs are unknown, start low, since a home that clears a low ratio has more room for a bad surprise.

The field accepts 50% to 95%. Running the same market at two ratios shows how many listings sit in the band between them.

None of this is financial advice. The ARV and every cost estimate are inputs to check against your own contractor bids and local comps before you make an offer.

Related

The rental side of the search, with the cap rate and rent-to-price thresholds, is in how to search a market by cap rate. For an overview of searching by return across a market, see search by cap rate.