Why the Lender’s ARV Is Lower Than Yours: How Private Lenders Value a Fix and Flip

Your after repair value (ARV) and your lender's ARV rarely match, and the gap can change how much cash you need at closing. A private lender sets ARV conservatively because it must be able to resell the property if the deal fails. Simplending Financial underwrites fix and flip loans against ARV, so this number shapes the loan you can get. On a loan capped at 75% of ARV, every $10,000 of ARV difference moves the maximum loan by $7,500.

This guide explains how fix and flip lenders set ARV on house flip loans, why their number often comes in lower, and what a lower number costs you. It also shows how to protect your deal before you apply.

What is after repair value (ARV) on a fix and flip loan?

After repair value (ARV) is the estimated market value of a property after the planned renovation is complete. On fix and flip loans, lenders use ARV to cap the loan amount, commonly as a percentage of ARV. It differs from as-is value, which is what the property is worth today in its current condition.

What is the difference between your ARV and the lender's ARV?

Your ARV is what you expect to sell the finished house for, while the lender's ARV is the conservative amount it could recover if it had to resell the property. You estimate yours with your finishes, your timeline, and a healthy market in mind.

The lender's ARV answers a different question: what could we recover if we had to take this property back and sell it? That question leads to a more cautious number. The lender cannot count on your design choices, your listing strategy, or a perfect market.

As a result, the lender's number is usually lower, and neither number is wrong. They simply measure different risks. Your goal is to bring a number the lender can verify.

How do fix and flip lenders set the ARV?

Fix and flip lenders set ARV with a third party appraisal, an internal review of sold comparables, or a combination of both. Each method starts from recent closed sales of renovated homes near the property and adjusts for size, condition, and the planned scope of work. The mix varies by lender.

• Third party appraisal. A licensed appraiser, working under USPAP standards, values the property as it sits today and as it will look after the planned work. The appraiser needs your scope of work to do this well.
• Internal valuation. Some lenders review sold comparables in house and build their own number.
• Broker price opinion (BPO) or desktop review. A BPO or desktop report is a shorter valuation that a lender may check against the other methods.

Many lenders combine two of these. For example, a lender may order an appraisal and then review it against its own comps.

How do lenders choose comparable sales?

Lenders pick closed, recent, nearby sales of renovated homes that match your property's size and layout. These comparable sales, or comps, drive the whole valuation. Lenders usually screen each comp on five points.

• Closed sales only. Active listings and pending sales do not count, because they show hope instead of results.
• Recent sales. Older sales can miss the current market.
• Close location. The best comps sit in the same subdivision or on nearby streets.
• Similar size and layout. Square footage, bedrooms, baths, and age should line up.
• Renovated condition. Your ARV comps should show renovated homes, not distressed ones.

Exact distance and date limits vary by lender and by market. A dense city block and a rural county road get very different treatment. In addition, state rules and market depth vary across the country, which matters when you buy outside your home market. Simplending lends in more than 45 states, as the nationwide private money lender guide explains.

Why does the lender's ARV come in lower than yours?

The lender's ARV comes in lower when your comps are stale, distant, or based on list prices, or when your rehab goes beyond what the block supports. A gap usually traces back to one of six causes.

• Stale or distant comps. You may have used a sale from last year or from across a major road. The lender will throw it out.
• List prices instead of sold prices. An asking price is not a result. Lenders only count what buyers actually paid.
• Over improving for the block. Every neighborhood has a price ceiling. A luxury kitchen in a starter home block rarely adds its full cost to value.
• Unpermitted square footage. Lenders and appraisers often exclude space that was added without permits.
• Comps across invisible borders. A different school zone, flood zone, or a busy street can change value on the same block.
• Optimistic assumptions. You may assume top finishes and a rising market. The lender assumes average execution and a flat market.

First time flippers often make the first two mistakes. The 5 most expensive mistakes first time flippers make covers the cost side of these errors.

How much does a lower ARV cost you?

When the loan is capped at 75% of ARV, each dollar of ARV you lose cuts the maximum loan by 75 cents. The cost is easy to calculate because house flip loans are usually capped as a percentage of ARV. SimpleFlip lends up to 90% of the purchase price plus 100% of the rehab, up to 75% of ARV. The lower of those two limits sets the loan.

Here is an illustration. A borrower buys a house for $200,000 and plans a $50,000 rehab. The borrower expects an ARV of $300,000.

	Your ARV	Lender's ARV
ARV used	$300,000	$280,000
Purchase price	$200,000	$200,000
Rehab budget	$50,000	$50,000
90% of price plus 100% of rehab	$230,000	$230,000
75% of ARV cap	$225,000	$210,000
Maximum loan (the lower limit)	$225,000	$210,000
Cash needed (before fees and closing costs)	$25,000	$40,000

In both cases, the ARV cap sets the loan. A $20,000 drop in ARV cuts the maximum loan by $15,000. Every $10,000 of ARV difference moves the cap by $7,500.

This is an illustration using SimpleFlip's published leverage. Actual terms depend on the deal, so request a custom quote for real numbers. For a full view of fees on top of this cash, read the true cost of a fix and flip loan.

How can you protect your numbers before you apply?

You protect your numbers by using closed comps, stress testing your ARV 5% to 10% lower, and sending a documented scope with your application. Follow these six steps.

1. Pull sold comps first. Use closed sales from recent months that match size, layout, and renovated condition.
2. Stress test your ARV. Rerun your deal with ARV 5% to 10% lower. If the deal still works, your margin is real. The Profitable Calculator helps you test this.
3. Stay under the neighborhood ceiling. Match your finishes to what sold comps show. Do not build for a price the block has never reached.
4. Document permits. Gather permits for any added square footage or major systems work.
5. Send a clean package. Include your scope of work, budget, and your best comps with your application. A clear scope also keeps your draws on schedule, as the draw schedule guide explains.
6. Ask about valuation early. When you compare fix and flip lenders, ask how each one sets ARV and what happens if its number differs from yours.

These steps also make underwriting smoother. The private money loan underwriting guide shows where the property review fits in the full process.

What can you do if the lender's ARV is lower than yours?

Start with evidence, not argument. Lenders respond to facts they can verify.

• Offer additional closed comps. Explain why each one fits your property better.
• Share a detailed scope. A clear scope shows the lender exactly what the renovation will deliver.
• Provide permit records. Documented work is easier to credit in the valuation.

If the gap holds, you still have options. You can negotiate a lower purchase price, trim the scope to protect your margin, or bring more cash. Sometimes the right choice is to walk away. A deal that only works at your ARV, and not at the lender's, carries real risk.

Does the same ARV logic apply to other loan types?

ARV drives SimpleFlip and SimpleBuild, but other programs use different values. SimpleBuild ground up loans also use a cap of up to 75% of ARV, but the ARV reflects the finished value of a new build. Lenders rely on comps for new construction in that case. For the cash side of that program, read how much down payment you need for a ground up construction loan.

Other programs work differently. SimpleRent purchase loans use the purchase price, and SimpleBridge purchase loans use as-is value. Refinance and cash out loans use as-is value on both programs.

Key takeaways

• A lender's ARV is usually lower than yours because it reflects what the lender could recover, not what you hope to earn.
• Lenders use closed, recent, nearby, renovated comps. Listings and pending sales do not count.
• When the loan is capped at 75% of ARV, every $10,000 of ARV difference moves the maximum loan by $7,500.
• Stress test your ARV by 5% to 10% before you apply.
• Bring evidence, not opinions, if you disagree with the lender's number.

Frequently asked questions

What percent of ARV do fix and flip lenders lend?

It varies by lender and program. SimpleFlip lends up to 90% of the purchase price plus 100% of the rehab, up to 75% of ARV. The lower of those limits sets the loan.

Does a private lender always order an appraisal?

Not always. Some lenders order a full appraisal, and others rely on their own valuation. Ask your lender which method applies before you apply.

Can I use my contractor's estimate as the ARV?

No. A contractor's estimate measures cost, while ARV measures value. Your contractor's numbers feed your rehab budget. Comparable sales set the ARV.

Is the lender's ARV cap the same as the 70% rule?

No. The 70% rule is an investor guideline for setting a maximum offer price. The lender's cap is a loan to ARV limit. They are different tools that answer different questions.

What happens if the appraisal comes in below my ARV?

The maximum loan drops, because the cap is a percentage of ARV. You can then bring more cash, renegotiate the price, or reduce the scope. Review your comps first to see whether the gap is real.

Will extra upgrades raise the lender's ARV?

Only if sold comps support the higher value. Upgrades above the neighborhood ceiling often add less to value than they cost.

Is ARV used for rental and bridge loans?

It depends on the program. SimpleRent purchase loans use the purchase price, and SimpleBridge purchase loans use as-is value. Refinance and cash out loans use as-is value on both.