How Cash Home Buyers Calculate Offers: The Actual Arithmetic

Educational only. This explains how these situations generally work. It is not legal, tax or financial advice, and the rules differ by state — talk to an attorney or CPA about your own situation before you act on any of it.

How cash home buyers calculate offers: the formula

This page works that arithmetic all the way to a figure, then compares what you would net on each of your realistic routes. Some of it is unflattering to how this industry sells itself, which is the point.

This is educational information, not an offer and not financial advice. The numbers below are a worked illustration on one hypothetical property, used to show how the arithmetic fits together. They are not a quote, not a prediction about your house, and not a fixed formula we apply — repair costs, market conditions and risk differ on every property, so the result differs too. Talk to an attorney or CPA about your own situation.

Offer = After-Repair Value − Repair Costs − Resale and Holding Costs − Buyer's Profit Margin

That is the whole thing. Every legitimate cash buyer is solving that equation, whether or not they show you the terms. A buyer who will not break their number into those four pieces is not doing different maths — they are declining to show it.

Here is what each term means:

• After-Repair Value (ARV) — what the house sells for once fully repaired, based on comparable sales nearby. Not a Zestimate, not an asking price. Recorded sales of similar houses.
• Repair costs — what it takes to reach that ARV. The single most disputed term.
• Resale and holding costs — what the buyer spends to own it and sell it again. Commission, closing costs, taxes, insurance, utilities, interest.
• Profit margin — the buyer's compensation for capital and risk. Real, and nobody works without it.

Working it through on a real market

Take a house in Akron, Ohio, where our recorded sales show a median of $165,000. Assume this one is a tired but structurally sound three-bedroom that needs a full cosmetic refresh, a roof and mechanicals.

Step 1 — After-Repair Value: $165,000

Set by comparable sales of repaired houses in the same ZIP with similar size and age. This number is checkable — ask for the comps.

Step 2 — Repair costs: $32,000

Step 3 — Resale and holding costs: $19,025

These are the buyer's costs, not yours, but they come out of the offer, so you should see them.

Closing costs are not a made-up line. The Consumer Financial Protection Bureau's guide to closing sets out what appears on a settlement statement and who customarily pays each item, and it is worth reading before you accept any offer, cash or financed.

Note the commission. The cash buyer pays an agent when they resell — you just do not pay one when you sell to them. It has not vanished from the transaction; it has moved.

Step 4 — Profit margin: $22,000

On a project of this size, tying up roughly $124,000 of capital for five months with real risk of the repair budget being wrong. If that number strikes you as large, it is worth knowing that it is also the number that absorbs the loss when a $32,000 repair estimate turns out to be $45,000.

Margin is the term that varies most between buyers and between properties. A low-repair house in a fast-selling area carries less risk and less holding time than a gut rehab in a slow one, and the margin should reflect that. Any buyer applying one fixed percentage to every house — including a fixed share of after-repair value — is not pricing your property, they are pricing their habit.

The offer

$165,000 − $32,000 − $19,025 − $22,000 = $91,975

Call it $92,000.

What about the "70% rule"?

You will see the 70% rule quoted everywhere: offer no more than 70% of ARV minus repairs.

On this house: (0.70 × $165,000) − $32,000 = $83,500.

That is $8,475 lower than the itemised build-up. The 70% rule is a mental shortcut that bakes in a fixed margin regardless of the actual project, and it is systematically wrong in both directions:

• Too low on a light, fast, low-repair house in a liquid market, where holding costs and risk are small
• Too high on a heavy rehab in a slow market, where five months becomes eleven and the margin evaporates

If someone quotes you an offer and justifies it with "that's the 70% rule," they are describing a habit, not a calculation. Ask for the four terms.

What you would actually net, on each route

This is the comparison that matters, and the one most sites skip. Same Akron house, three routes.

Three honest conclusions.

Repairing and listing nets about $24,150 more than selling for cash. That is not a small gap and we are not going to dress it up. If you can fund $32,000 of repairs, manage the work, and wait four to six months, that is the right decision and you should do it. The reason people do not is almost always that they have neither the $32,000 nor the months.

Listing as-is nets essentially the same as a direct cash sale — $90,250 against $90,900, a difference of $650. This surprises people, and the mechanism is simple: an as-is listing reaches the same investor buyers a cash sale reaches, then adds a $5,775 commission and four months of carrying costs. You pay a commission to reach a buyer you could have reached directly.

The gap is the price of certainty and speed. Roughly $24,150 on this house buys you: no repair spend, no showings, no financing contingency, no appraisal, and a closing date you choose. Whether that is worth it depends entirely on whether you have the cash and the time. For plenty of people it is not worth it, and they should list.

What actually moves an offer up or down

These are the levers, and several are in your control.

Raise the number:

• Accurate condition information upfront. Unknowns get priced as risk. A known $4,000 problem costs you $4,000; an unknown one costs more.
• Clear title. No missing heirs, no open liens, no unpermitted additions.
• Flexible closing date. Lower holding costs for the buyer.
• Cosmetic-only work. Paint and flooring are predictable; foundations are not.
• Vacant, or a cooperative occupant. Access matters.

Lower the number:

• Structural, foundation or active water problems. Wide estimate ranges get priced conservatively.
• Title defects. Probate not completed, judgment liens, heirs who have not agreed — see selling an inherited house.
• Accrued code violation fines, which often transfer with the property — see our code violations page.
• A holdover tenant or occupant who has not agreed to leave — see selling a rental property with tenants.
• Failed septic or well, which can block financing entirely and shrink the resale pool.

Five questions that protect you from a bad buyer

The arithmetic above describes an honest buyer. Some are not, and the common tactics are worth naming plainly.

The one to watch for is the retrade: a buyer offers a high number to get your signature, then reduces it after an "inspection," close to your closing date, when you have already committed and have less room to walk. A high offer that falls 15% at week three nets you less than a realistic offer that closes.

If you are behind on payments, be especially careful. Distressed sellers are the specific target of foreclosure-rescue and equity-stripping schemes, and the CFPB's guidance on spotting and avoiding foreclosure relief scams describes the patterns. A free HUD-approved counsellor, found through the CFPB housing counsellor directory, will review an offer with you at no cost.

Ask any cash buyer these five questions and write down the answers:

1. Are you the end buyer, or will you assign this contract? Many "buyers" are wholesalers who sell your contract on. That is legal and can still close, but you should know who you are actually dealing with.
2. How long is your inspection period, and can you cancel for any reason? A 30-day unilateral cancellation right is a free option on your house.
3. How much earnest money, and when does it become non-refundable? Meaningful, hard earnest money is the clearest signal a buyer intends to close.
4. Can you show me proof of funds dated this week?
5. What are your four terms — ARV, repairs, costs and margin? An honest buyer will walk you through them. Everything on this page is what that answer should look like.

Common questions

How do cash home buyers calculate offers?

They start from the after-repair value, then subtract repair costs, their resale and holding costs, and their profit margin. The remainder is the offer. Reputable buyers will itemise all four terms and show you the comparable sales behind the after-repair value.

Why is a cash offer lower than market value?

Because "market value" describes a repaired house sold to a financed buyer over several months with a commission paid. A cash offer buys an unrepaired house immediately with no commission and no financing risk. The difference is the repair cost, the carrying cost, the commission on resale and the buyer's margin — not a discount for its own sake.

What is the 70% rule in real estate?

A shorthand: offer no more than 70% of after-repair value minus repair costs. It approximates the full calculation with a fixed margin, so it tends to understate offers on light, quick projects and overstate them on heavy rehabs in slow markets. Treat it as a sanity check, not a valuation.

Do I pay any fees or commission when selling to a cash buyer?

Generally no agent commission, and most cash buyers cover standard closing costs. You remain responsible for paying off what is secured against the property — mortgage balance, delinquent property taxes, liens — from the proceeds. Ask for a written estimate of your net before you sign.

Is a cash offer ever more than what I would net listing?

Yes, in two common cases. Where the house cannot be financed or insured, so retail buyers are unavailable at any listing price. And when compared against an as-is listing, where you pay a commission to reach the same investor buyers plus months of carrying costs — as the table above shows, that route can net slightly less than selling directly.

How do I know if a cash offer is fair?

Ask for the four terms and the comparable sales. Then get a second offer, and if you can, a broker's price opinion or an appraisal. A fair offer survives being checked; the ones that do not are the ones where the buyer declines to show their arithmetic.