Here is how a cash offer is calculated. A cash offer is not a market appraisal. It is a number worked backward from what the property would be worth once it is fixed up, with every cost and risk between here and there subtracted out. This page walks through each thing that gets subtracted, why it gets subtracted, and where a seller can reasonably push back. When Alex is the buyer, this is his math too — and he has a financial interest in the result, because a lower purchase price is better for him.
Start from the end: after-repair value (ARV)
Every cash offer starts with one estimate: what would this property sell for, on the open market, after it has been renovated to current buyer expectations? That figure is the after-repair value, or ARV.
A buyer estimates ARV from comparable renovated sales in the same area — not from as-is or distressed sales, and not from the current condition of your home. Because renovated comps are a matter of judgment (which sales count, how similar they really are, how fast the local market is moving), two reasonable people can land on different ARVs for the same house. If you have your own opinion of value — a recent appraisal, an agent’s CMA — it is fair to put it on the table.
Subtract the work: repair and renovation scope
Next, the buyer subtracts the estimated cost to bring the property to that renovated condition. Repair scope usually breaks into:
- Structural — foundation, roof, framing.
- Systems — electrical, plumbing, HVAC, sewer line.
- Cosmetic — kitchens, baths, flooring, paint, landscaping.
- Permits and code — bringing prior unpermitted work into compliance.
Buyers estimate this conservatively, because the cost of a surprise after closing falls on them. A seller can tighten this number by having documentation ready: recent contractor bids, permit records, proof of a newer roof or a re-piped house, and easy access for a walkthrough.
Subtract the time: holding and transaction costs
The buyer will own the property for months before it is resold or rented, and pays to carry it the whole time:
- financing cost or the opportunity cost of the cash;
- property taxes, insurance, utilities, and any HOA dues during the hold;
- closing costs on the purchase, and again on the eventual resale;
- the commission the buyer will pay a listing agent when they resell.
None of these are charged to you. They are subtracted from what the buyer can offer because they are real costs of the buyer’s side of the deal.
Subtract the risk: the buyer’s required return
Finally, the buyer subtracts a margin for taking on the project. They are accepting the condition of the house sight-unseen-by-a-lender, an uncertain renovation, and a resale months away in a market that could move against them. A buyer needs a return for carrying that risk, and if the deal doesn’t clear that bar they walk away. This is the honest answer to “why is a cash offer below market” — the margin is the reason, and it is the trade for speed, certainty, and selling as-is.
What’s left is the offer range
Put the pieces together and what remains is the offer range. An illustrative example, with round numbers, for explanation only — not an offer, and not a percentage this site commits to:
| After-repair value (ARV) | $500,000 |
| − Estimated repairs | − $60,000 |
| − Holding & transaction costs | − $35,000 |
| − Buyer’s target return | − $55,000 |
| ≈ Offer range | $350,000 |
Change any input — a higher ARV, a lighter repair scope, a shorter hold — and the offer moves with it. That is why a walkthrough and real repair bids can matter to the final number.
About the “70% rule” and other shortcuts
You will see the 70% rule quoted online: offer ≈ 70% of ARV, minus repairs. It is a rough investor heuristic, not a law and not this site’s formula. The real percentage varies widely with the market, the property’s condition, the buyer’s cost of capital, and whether they plan to resell or hold as a rental. Treat it as a sanity check, not a promise.
Why an open-market sale can produce a different number
Listing the home on the open market exposes it to many buyers at once, and that competition can lift the price above what any single cash buyer will pay — at the cost of prep, time on market, and the risk that financing, appraisal, or inspection re-trades the deal. Alex can represent you on that path as your listing agent through MGR Real Estate. To weigh the two side by side, see Compare your options and Cash offer vs. realtor vs. iBuyer.
Questions worth asking any cash buyer
- How did you estimate ARV, and which comparable sales did you use?
- What repair scope are you assuming, and can we walk it together?
- What return are you targeting on this purchase?
- Will you assign the contract to another buyer, or close on it yourself?
- What are your inspection and cancellation terms?
Ready to compare your options?
Share a few details and Alex will help you understand whether a cash sale with him as the buyer, an open-market sale with him as your listing agent through MGR Real Estate, or another professional resource fits your situation.
Compare my optionsOn a cash sale, Alex Gonzalez is the buyer for his own account through Synergy Real Estate Group — a principal, not your agent, with a financial interest in the purchase price; deals that do not fit his buying criteria may be presented to other investors in his network, who may pay him a referral fee. On an open-market sale, Alex represents you as your listing agent through MGR Real Estate under a separate written listing agreement; outside his direct service area he refers you to a partner brokerage and may receive a referral fee. No offer, sale price, timeline, foreclosure outcome or closing is guaranteed.
Frequently asked questions about how a cash offer is calculated
Why is a cash offer lower than market value?
Because it is worked backward from the after-repair value, with repairs, holding and transaction costs, and the buyer’s required return all subtracted out. The buyer is also taking on the condition and the resale risk, and needs a margin for that. The lower number is the trade for speed, certainty, and selling as-is with no commission.
What percentage of market value do cash buyers usually offer?
There is no fixed percentage. It depends on the repair scope, the local market, the buyer’s cost of capital, and their plan for the property. The widely quoted “70% of ARV minus repairs” is a rough rule of thumb, not a standard and not a formula this site uses.
What is ARV?
After-repair value — the estimated price the property would sell for on the open market once it has been renovated to current buyer expectations. It is estimated from comparable renovated sales, not from as-is sales or the home’s current condition.
Does Alex use the 70% rule?
No single rule. Alex works an offer backward from ARV, minus a real repair estimate, minus holding and transaction costs, minus a target return. The “70% rule” is an industry shorthand, useful as a sanity check, not the method.
Can I negotiate a cash offer?
Yes. The offer is only as firm as its inputs. A more accurate ARV, contractor bids that show a lighter repair scope, or a shorter closing timeline can all move the number. Asking how each part was estimated is the most useful thing you can do.
Will I get more by listing on the market?
Often, a prepared home listed on the open market draws competing buyers and a higher price — but with prep cost, time on market, and financing, appraisal, and inspection risk. Whether the higher likely price is worth the added time and uncertainty depends on your situation. That is the comparison Alex can walk through with you.