How Cash Home Buyers Calculate Their Offers: The Math Explained

Many homeowners are curious how cash buyers calculate their offers. They assume cash home buyers make random, low-ball bids. Professional real estate investment companies use mathematical formulas based on local market values and repair costs. Let's explain the math behind the offer.

The Standard Formula: The 70% Rule

Most investors use a variation of the 70% Rule: Offer = (ARV x 70%) - Repairs.

• After Repair Value (ARV): The estimated market value of the home after it is completely renovated. This is determined by comparing similar properties (comps) recently sold in the area.
• Rehab Costs (Repairs): The estimated cost of labor and materials needed to renovate the property (roofing, foundation, plumbing, painting).
• 70% Factor: The discount that accounts for holding costs (taxes, utilities, insurance during renovations), financing costs, closing fees, and a target profit margin (usually 10% to 15%).

Example Calculation

If a home's ARV is $200,000, and it needs $30,000 in repairs:

Offer = ($200,000 x 70%) - $30,000 = $140,000 - $30,000 = $110,000.

While this is lower than the ARV, you avoid spending $30,000 on repairs, paying $12,000 in agent fees, and waiting 6 months. Peak Cash Buyers uses local Buffalo market values to make fair cash offers. Read our comparison guide to see the net savings.