If you’re considering selling your home for cash, you’ve likely wondered how investors determine their offers and if the offers are fair. It can feel like some buyers are just pulling a number out of thin air or always presenting a lowball offer. However, the fairness of a cash offer often depends on who you are working with.
Here is a breakdown of the exact formula most real cash investors use to calculate a cash offer, what numbers they are using behind the scenes, and how to spot a bad offer.
The Cash Offer Formula
Most real cash investors utilize a simple formula to arrive at a cash offer for your home:
Cash Offer = After Repaired Value − Repairs and Renovation Costs − Holding Costs, Selling Costs, and Profit Margin
Let’s break down each component of this formula.
After Repaired Value (ARV)
The After Repaired Value is what your home would likely sell for on the open market if it were completely renovated and “magazine worthy”. It’s not the home’s current value, but its worth after a full makeover, both inside and out.
Investors determine this value by looking at other fully renovated homes in your neighborhood that have sold recently. They focus on similar sales with updated features such as:
Similar square footage and style
Updated kitchens and baths
Newer roofs, windows, and flooring
The ARV serves as the top-line number for their calculation.
Repairs and Renovation Costs
This is the estimated cost to bring the home up to the “magazine worthy” standard (the ARV). It’s important to be cautious here, as some buyers might inflate this number to justify a lower offer.
Real investors, unlike those who throw out a random, high number, should use real contractor bids to document and explain every repair estimate, allowing them to back up their math.
Holding Costs, Selling Costs, and Profit Margin
Investors must factor in a margin to cover the costs they will incur after purchasing the home and their anticipated profit.
Holding Costs: These include expenses like taxes, insurance, and utilities while the investor owns the property.
Selling Costs: When the investor re-lists the renovated home, they incur selling costs, which typicaly include commissions, titles, fees, and transfer tax.
Profit Margin: A profit is included as a line item in the calculation. Most real investors aim for about 10% to 20% return based on the risk, timeline, and complexity of the project.
How to Spot a Bad Offer and Get a Fair Price
If a buyer’s margin is building in the 30% to 40% range and they are still lowballing you, that is a red flag.
To ensure you receive a fair offer and don’t leave money on the table, it is helpful to work with a process that encourages competition. One effective method is to:
Record a video walkthrough of your home.
Send the video to multiple real cash buyers in an investor network.
Allow the investors to compete with each other.
After receiving the offers, a professional should present a side-by-side net sheet breakdown for you. This sheet allows you to compare the key components of each offer, which include:
The offer price
Repair estimates
The closing timeline
What you actually walk away with
This process ensures you are comparing real offers with clarity and not just guessing what your home is worth.
Whether you’re dealing with an inherited property, a tough timeline, a divorce, or you simply want to avoid the headaches of a traditional listing, you deserve to know what your home is truly worth and what your best options are.
