How Cash Home Offers Are Calculated

A cash buyer is buying a house as-is, taking on the repairs, the holding costs, the resale costs and the risk. The offer is what's left of the house's eventual value after those are accounted for.

Most methods start from the same pieces:

• What the house would be worth after repairs
• What the repairs will cost
• What it costs to own the house while the work gets done
• What it costs to sell it afterward
• A margin for risk and the buyer's return

The starting point is usually the house's after-repair value: what it would likely sell for in good, updated condition. Buyers estimate this from comparable sales, recent sales of similar homes nearby with similar size, age, bed and bath count, and lot.

At Smith Home Buyer, our process starts the same way: we pull local comparable sales and factor in condition and repairs before sending a written offer (How It Works).

Next is what it will take to bring the house up to that after-repair condition. For an older or inherited house, that might include:

• Roof, HVAC, water heater, electrical or plumbing
• Foundation or drainage work
• Kitchens and bathrooms
• Flooring, paint and fixtures
• Cleanout of furniture and belongings
• Code issues or permits

This is where offers on the same house can differ the most. One buyer might plan a light refresh while another plans a full renovation.

While the house is being repaired and resold, someone pays to own it: property taxes, insurance, utilities, lawn care and, if the buyer borrows money, financing costs. On a longer project, these add up.

When the buyer resells, they usually pay many of the same costs a homeowner would: agent commissions, closing costs, transfer tax, and concessions to the next buyer.

Repairs run over budget. Markets shift. Houses sit longer than expected. A buyer builds in a margin to cover that risk and earn a return on the money and time involved. That's the part of the gap between retail price and a cash offer that pays for certainty and convenience on your end.

Here's an illustration with round, made-up numbers, not a quote for any real house:

• After-repair value: $400,000
• Repairs and cleanout: $55,000
• Holding costs for several months: $12,000
• Resale costs (commissions, closing, concessions): $28,000
• Risk margin and return: varies by buyer

$400,000 minus $55,000, $12,000 and $28,000 leaves $305,000 before the buyer's margin. The offer would land below that.

You'll also hear investors talk about a "70% rule" (offer around 70% of ARV minus repairs). That's an industry rule of thumb, not a law or a standard, and buyers use it differently or not at all depending on the house and market.

A cash offer is typically below full retail list price. That's the honest trade-off. What you give up in price, you save elsewhere:

• No commissions. A traditional listing typically costs 5 to 6% of the sale price.
• No repairs before the sale and no inspection repair requests.
• No cleaning or staging.
• No showings.
• No financing fallout. Cash deals don't depend on a buyer's lender or appraisal.
• Fewer carrying costs. Taxes, insurance and utilities stop sooner.
• You pick the closing date.

Compare net proceeds, not headline price. For the listing estimate, start with a realistic sale price (not the highest list price you've seen), then subtract commissions, repairs and inspection concessions, prep costs, and the months of mortgage, taxes, insurance and utilities until closing. Then compare that net with the cash offer minus your closing costs.

Also weigh things that don't show up in dollars: how much time you have, whether you live nearby, whether the house is part of an estate, and how much time and effort the process will take. Our post on selling a house off-market in Nashville covers the broader pros and cons.

• A written offer with clear terms
• No fees to you for the offer
• Time to think it over, with no pressure to sign
• A closing handled by a local title company or closing attorney
• A buyer who explains how they arrived at the number

A good buyer should be comfortable explaining their offer and giving you time to decide.

• Inherited houses: the offer works the same way, but timing depends on who can sign. See can you sell a house during probate in Tennessee?
• Houses with a mortgage or reverse mortgage: the loan is paid off from proceeds at closing. See what happens to the mortgage when someone dies.

Why is a cash offer lower than my home's market value?

Because the buyer takes on repairs, holding costs, resale costs and risk. In return, you skip commissions, repairs, showings and financing delays.

Do cash buyers use the 70% rule?

Some investors use it as a rough starting point. It's a rule of thumb, not a requirement, and every buyer's method differs.

Can I negotiate a cash offer?

You can always ask questions, share information about the house's condition or recent updates, and decide not to accept. Our offers are no-obligation.

What does Smith Home Buyer look at?

The address, condition and your timeline. We review local comparable sales and the repairs the house needs, then send a written cash offer.

The best way to see how the math works on your house is to get a real number. Get your free cash offer: tell us about the property. No obligation, no fees, no repairs. Or read our FAQ first.