How Cash Home Buyers Calculate Their Offers
Published
If you’ve gotten a cash offer on your house and wondered where the number came from, you’re not alone. Most investors use a similar formula. Once you understand it, you can judge any offer, including ours.
Step 1: After-repair value (ARV)
The starting point is what the house would sell for after it’s fully repaired and updated. Buyers estimate this from recent sales of similar, renovated homes nearby: same general size, age, and neighborhood, sold in the last several months.
This is the most important number in the whole calculation, and it’s where offers vary the most. Ask any buyer which comparable sales they used.
Step 2: Repair costs
Next comes an estimate of what it will cost to bring the house to that “after” condition. In Polk County the big items are usually:
- Roof replacement
- HVAC
- Electrical panel and wiring updates
- Plumbing (especially older cast-iron or polybutylene)
- Kitchens, baths, flooring, and paint
- Any storm, water, termite, or foundation damage
Investors typically pad this estimate for surprises, because the problems they find after buying are theirs to pay for.
Step 3: Costs to buy, hold, and resell
A buyer who renovates and resells will pay:
- Closing costs when they buy and again when they sell
- Agent commissions on the resale
- Loan costs and interest, if they use financing
- Taxes, insurance, and utilities during the renovation
Step 4: Profit and risk
Finally, investors need a margin for profit and risk. Renovations run over budget, markets shift, and some deals lose money. The margin depends on the size of the project and how much can go wrong.
Putting it together
A simplified example:
| After-repair value | $300,000 |
| Repairs | –$45,000 |
| Buying, holding & resale costs | –$30,000 |
| Profit & risk margin | –$30,000 |
| Offer | ≈ $195,000 |
What this means for you
- The worse the condition, the bigger the gap between an offer and full retail value, because repairs and risk go up.
- A cash offer isn’t a lowball by default. But you should always ask how it was calculated.
- Compare net proceeds, not just prices. A higher list price minus commissions, repairs, and months of holding costs can come out closer than you’d expect. We break that down in cash offer vs. listing with an agent.
When we make an offer, we’ll walk you through each of these numbers for your house.