One of the most common questions we get is, “How did you come up with that number?” It’s a fair question, and you should expect a straight answer from any cash buyer. Here’s how the math works.
Step 1: What the house would be worth fixed up
Buyers start with the after-repair value, or ARV: what the house would likely sell for after it’s been repaired and updated. That’s based on recent sales of similar, updated homes nearby, not on online estimates, which often miss a home’s actual condition.
Step 2: The cost of the repairs
Next comes an estimate of what it will take to get the house to that value: roof, foundation, mechanicals, kitchen and baths, flooring, paint, cleanout and anything else it needs. The more work a house needs, and the more uncertainty there is (like possible water damage behind walls), the bigger this number gets.
Step 3: The costs to buy, hold and resell
A cash buyer also pays costs you might not think about: closing costs on both the purchase and the resale, property taxes, insurance and utilities while the work gets done, financing costs, and the agent commissions and seller costs when the finished house is sold.
Step 4: A margin for risk and profit
Finally, the buyer needs a margin to cover surprises and make the deal worth doing. This is the part that varies most from buyer to buyer.
Putting it together
Roughly: offer = after-repair value − repairs − buying, holding and resale costs − margin. That’s why a cash offer is almost always lower than the price of a fully updated house, and why it’s closer to market value when the house needs less work.
How to tell if an offer is fair
- Ask for the math. A reputable buyer will explain their after-repair value, repair estimate and costs.
- Check who pays closing costs. We pay all of them. Some buyers take them out of your proceeds.
- Watch for fees. There should be no commissions or “processing” fees.
- Look at the contract. A strong offer that’s later cut after an inspection isn’t a strong offer. Ask how often they change their price.
- Compare. Get more than one offer, and ask an agent what the house would net if listed.
What affects your offer
Condition matters most. Location, the local market, the size of the repair list and how quickly you need to close all play a part too. The best thing you can do is be upfront about what you know. It keeps the offer from changing later.
Want to see the math for your house? Get a free cash offer and we’ll walk you through exactly how we priced it.
