How “We Buy Houses” Companies Calculate Your Cash Offer: A-Z Breakdown

It’s essential to understand how buyers arrive at a cash offer by combining market comparables, estimated repair costs, holding and transaction expenses, and a built-in profit margin. You should expect that shorter closing timelines can increase the discount, while undisclosed title or inspection issues pose a risk to your payout. This guide demonstrates how each factor is quantified, enabling you to evaluate and negotiate with confidence. Other guides in selling your house in MA can be read in a different blog post.

Key Takeaways:
  • The offer formula centers on ARV (after-repair value) minus estimated repair costs, holding/selling expenses, and the buyer’s required profit margin.
  • ARV is determined by comparing recent local sales (comps) and adjusting for differences in size, condition, upgrades, and location.
  • Repair estimates are based on a walkthrough and contractor quotes, or cost-per-square-foot rules, with contingencies for hidden issues and permits.
  • Holding and transaction costs—such as financing interest, taxes, insurance, utilities, marketing, and closing fees—are subtracted from the offer.
  • Title issues, liens, occupancy status, time-to-close expectations, and local market demand influence the discount applied to the seller’s price.

Understanding “We Buy Houses” Companies

What They Do

They target distressed, inherited, or off-market properties and present quick, all-cash solutions, allowing you to avoid lengthy listings and showings. You’ll see guide and offers made for homes sold “as-is”, often closing in 7–30 days, and the pitch frequently emphasizes speed and convenience. Typical offers run roughly 10–40% below market value to account for repairs, holding costs, and investor margin. Therefore, you should compare any cash figure against comparable sales and repair estimates before making a decision.

Business Model Overview

Most buyers underwrite offers using an After-Repair Value (ARV) model—commonly referred to as the 70% rule: Offer = ARV × 0.7 − estimated repairs. For example, if comps put the ARV at $200,000 and repairs are $30,000, an investor might calculate $ 200,000 × 0.7 − $30,000 = $ 140,000 as the maximum offer you’ll see.

Digging deeper, their math folds in acquisition costs (marketing, lead buy), financing (private or hard-money at roughly 8–12% annual interest), holding costs (taxes, insurance, utilities), and a target profit—often 10–30% of ARV on flips. You’ll notice different exit strategies affect offers: wholesale deals aim for quick assignment fees, flips build in rehab budgets and shorter hold times (30–120 days), while buy-and-hold projections factor in rental income and longer holds (6–24 months). Those line items explain why a seemingly low cash offer can still make sense to the buyer, but may be negotiable if your comps or repair bids differ.

Factors Influencing Cash Offers

Investors price offers by weighing repair costs, local comps, carrying and closing expenses, title risks, and the time you need to close; larger unknowns trigger bigger discounts. They often apply conservative assumptions—such as dating comps by 30–90 days or adding a 5–15% contingency for unseen repairs. After these inputs, determine how far below market the final cash offer lands.

  • Property Condition
  • Market Trends
  • Comparable Sales
  • Repair Costs
  • Carrying Costs
  • Title/Legal Issues
  • After-Repair Value (ARV)
  • Timeframe to Close
Property Condition

When you disclose issues like a leaking roof, mold, or foundation cracks, buyers typically subtract estimated repairs—often between $5,000 and $50,000, or roughly 5–20% of the ARV—from their offer. If there are major structural problems or extensive water damage, offers can drop an additional 20–50% to cover demolition, permits, and prolonged rehab timelines.

Market Trends

Local momentum matters: a neighborhood with rising median prices (for example, +3% over 90 days) and low inventory tends to push up offers, while a market with inventory up 20% or more, or slowing sales, tends to push discounts. You’ll see investors adjust by tightening margins or lengthening holding assumptions based on 30–90 day metrics.

Digging deeper, many cash buyer companies use rules of thumb, such as the 70% rule: maximum offer = (ARV × 70%) − estimated repairs. For example, if the ARV is $200,000 and the repairs are $30,000, the guideline offer would be $ 170,000. You should expect adjustments for local cap-rate targets, taxes, and any expedited closing premium.

The Calculation Process

You see the math as a few clear steps: determine the After-Repair Value (ARV), subtract estimated repair costs, and the investor’s required margin to cover holding, closing, and profit. Many buyers use the 70% rule as a quick guide — offer ≈ ARV × 0.7 − repair costs — while validating with line‑item estimates and local comp data before settling on your cash number.

Comparative Market Analysis

You compare recent, similar sales to set the ARV, typically using 3–6 comps sold within the past 6 months, all within a 0.5–1 mile radius. Adjustments are then made for bedrooms, baths, square footage, and condition, so the reconciled price reflects what buyers are actually paying in your micro-market.

Metric Example / Impact
Count of comps 3–6 sales (last 6 months, 0.5–1 mile)
Bedroom adjustment ~±$8,000–$12,000 per bedroom
Bathroom adjustment ~±$4,000–$7,000 per bath
Sqft adjustment $100–$200 per sq ft (varies by neighborhood)
Location/condition Premium/discount up to 10–15% vs. comps
Estimated Repair Costs

You rely on a line‑item repair estimate from an inspector or contractor covering demo, systems, finishes, and permits; expect cosmetic rehabs around $5,000–$15,000, mid‑level work $15,000–$35,000, and major structural or roof/foundation jobs at $15,000–$50,000+, plus a standard 10–15% contingency for hidden issues.

For example, if the ARV is $260,000 and comps support that, a $30,000 repair estimate plus a 10% contingency ($3,000) yields total repairs of $33,000. Applying the 70% guideline gives an offer ≈ of approximately $ 260,000 × 0.7 − $33,000 = $149,000. You should factor in permit costs, potential mold or termite remediation (which can add $5,000–$20,000), and whether quoted work is by trade or turnkey. Also consider per‑square‑foot estimates—full gut rehabs often run $50–$120/ft²—and allow an extra buffer if visible issues suggest deeper problems.

Transparency and Trust

Expect an itemized written offer that shows purchase price, repair estimate, holding and closing costs, and your projected net cash at closing. You should also see proof of funds and a clear timeline (commonly 7–21 days). When a buyer breaks figures into line items and cites comparable sales, you can verify assumptions — for example, a 10% repair adjustment on a $250,000 ARV equals a $25,000 deduction you can audit.

How Offers Are Presented

Offers typically arrive as a one-page letter accompanied by a calculation sheet that lists the ARV, repair costs, carrying costs, and fees. For instance, on a $250,000 ARV, you might see $25,000 in repairs and $7,500 in closing/holding costs, yielding an offer of around $217,500; that net cash at closing line is what you should focus on. Pay attention to contingencies, inspection windows, and whether figures are estimates or firm commitments.

Avoiding Common Pitfalls

Watch for verbal promises, vague line items, and hidden fees, such as administrative or processing charges, that are buried in the fine print. Also, verify title status — title liens or unpaid taxes can subtract thousands from your proceeds. If you accept without documentation, you risk last-minute reductions or delays that cut into your cash.

Demand an itemized breakdown, a recent title report, and consider an independent inspection or appraisal before waiving protections. For example, a missed $12,000 lien on a $180,000 property can erase most of a negotiated uplift; similarly, an underestimated repair that jumps from $8,000 to $18,000 will significantly lower your net. Insist on escrow instructions and written timelines to lock in the numbers you relied on.

Alternatives to Selling to Companies
Traditional Real Estate Sales

You can list with an agent for a wider buyer pool and often net closer to full market value, but expect typical agent commissions of 5–6%, plus closing costs and staging or repair bills. Homes typically sit on the market for 30–60 days, with the total time-to-close commonly ranging from 45 to 75 days. If you want to get the top price, you’ll invest in repairs, inspections, and marketing; if speed matters more than price, this route may not suit your timeline.

Other Quick Sale Options

Auctions, FSBO listings, wholesalers, and deed-in-lieu or short-sale arrangements enable you to close faster than with a standard listing. Auctions can move properties in days but may incur buyer or seller fees of up to 10–12%. Wholesalers typically assign contracts for a fee ($5k–$20k), while short sales can take months and negatively affect credit. Weigh the trade-off between speed and net proceeds before making a choice.

For example, an auction might net you ~85–95% of the market within 10–30 days, whereas a wholesaler could take a $10k–$30k assignment fee but close in 7–21 days. Short sales typically require lender approval and can take 3–12 months, which may impact your credit history. Bridge or hard‑money loans give immediate funds but carry interest rates of 8–15% and origination fees of 2–5 points, so model your net proceeds under each option.

Frequently Asked Questions

Common Concerns

You’ll often see offers that are 10–30% below market value because buyers deduct immediate repair costs, holding expenses, and resale margin. If your roof requires $8,000 in work, expect that amount to be subtracted. Fast closings of 7–14 days further reduce the offer, as carrying costs decrease. Ask for an itemized breakdown and compare it to an as-is MLS estimate to evaluate whether the net cash aligns with your goals.

Myths vs. Facts

Many myths persist: you’re not required to take the first figure, and cash deals aren’t automatically risky—inspections, title searches, and escrow protections often remain in place. For instance, one seller secured an additional $3,000 by presenting three competitive repair bids, then closed the sale in 10 days, raising the net proceeds by about 5%.

Dig deeper by requesting the full calculation—repairs, avoided commissions, closing fees, holding costs, and the buyer’s profit target. Typical investor profit goals sit around 8–15% of ARV; with $20,000 repairs and $3,000 holding/closing on a $200,000 ARV, an investor seeking 12% profit would arrive near a $153,000 offer, which explains many of the common discounts you’ll see.

Final Words

With this in mind, you should evaluate an offer by inspecting estimated repair costs, local comps, holding and closing expenses, title and inspection findings, and the buyer’s required profit and timeline; request a line-item breakdown, compare net proceeds against your time and risk tolerance, and use that analysis to decide whether the cash offer aligns with your priorities.