How Cash Home Buyers Calculate Offers

The four-line formula

Nearly every professional home buyer uses some version of the same calculation.

1. Start with the after-repair value. What the house would sell for on the open market fully updated, based on recent sales of genuinely comparable nearby homes.
2. Subtract repairs. The itemised cost of bringing it to that condition — roof, mechanicals, structure, kitchen, baths, cosmetics.
3. Subtract transaction and holding costs. Taxes, insurance, utilities and closing costs the buyer carries while owning and reselling it.
4. Subtract the buyer's margin. The profit that keeps a buying business running. A legitimate buyer tells you this number exists; a dishonest one pretends it does not.

What is left is the offer. When we present yours, you see the comparable sales we used and the repair estimate itemised.

A worked Rochester example

A three-bedroom cape in a Monroe County suburb. Similar houses, fully updated, have recently sold around $220,000 — that is the after-repair value, and it is the number to argue about if you are going to argue about anything.

These figures are illustrative — your own numbers will differ, sometimes a lot. The point is the shape: if a buyer cannot show you all four lines for your house, you cannot evaluate their offer, and neither can anyone else.

Notice where the leverage is. The repair line is the one most worth scrutinising, because it is the one most often inflated. Ask what each item assumes. If a roof is priced at $20,000 on a 1,200-square-foot ranch, ask why.

Why a cash offer is below full retail — and when it still wins

A cash offer will almost always be below what a fully renovated version of your house would fetch with an agent. That is not a trick, it is the price of what you are not doing: no repairs, no cleaning, no showings, no commission (customarily 5–6%), no seller closing costs, no months of carrying the property, and no risk of a financed buyer's loan falling through.

For a house needing significant work, or a seller who needs certainty on a date, the net after all those avoided costs can come out surprisingly close — occasionally ahead. For a move-in-ready house and a seller with time, listing genuinely nets more, and an honest buyer says so.

Four red flags

• No explanation. If a buyer will not show you the repair estimate and the comparable sales, walk away. There is no good reason to withhold them.
• Pressure. "This offer expires tonight" is a red flag. A fair number is still fair next week.
• The re-trade. Some buyers offer high, then cut the price days before closing once you are committed. Ask any buyer, in writing, whether the offer is final after the walkthrough.
• Fees appearing later. A legitimate direct buyer charges no commission and no fees. The number on the contract is the number you receive, minus only your own payoffs.

Questions