How Do Cash Home Buyers Calculate Offers?

The short answer: most cash home buyers use the 70 percent rule. The formula is:

> Cash offer = (ARV × 0.70) − estimated repair costs

ARV is the after-repair value, meaning what the home would sell for fully renovated. The 0.70 multiplier covers the buyer’s profit margin, holding costs, financing costs, and resale expenses. The repair cost is subtracted because the buyer has to spend that money to bring the home to market-ready condition.

Worked example: a home with an ARV of $300,000 and $30,000 in needed repairs would receive an offer of $300,000 × 0.70 − $30,000 = $180,000.

That’s the most common version. Below we walk through the math in detail, including the variations between investor types, why margins exist, and how to evaluate whether the offer you receive is fair.

Photo by Sasun Bughdaryan on Unsplash

The Full Math, Component by Component

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The 70 percent rule is a simplified version of a more detailed calculation. The full equation that cash buyers actually run looks more like:

> Cash offer = ARV − repair costs − holding costs − resale costs − financing costs − profit margin

Each component:

ARV (after-repair value). What the home will sell for once renovated. Determined by comparable sales of recently renovated homes in the same neighborhood, same school district, similar square footage and bed/bath count. Pulled from MLS data, county records, and real estate platforms.

Repair costs. Total budget to bring the home to market-ready. Includes mechanical (roof, HVAC, plumbing, electrical), cosmetic (paint, flooring, kitchen, bathrooms), and any structural work. Estimated by walking the property and pulling contractor rates for the local market.

Holding costs. Property taxes, insurance, utilities, HOA fees, and mortgage interest (if the buyer financed the purchase) for the months between purchase and resale. Typically 4 to 9 months. Costs $400 to $1,200 per month for a typical home.

Resale costs. Agent commission (5 to 6 percent if listing the renovated home), seller closing costs (1 to 3 percent), staging and photography, transfer taxes. Add up to 7 to 10 percent of the resale price.

Financing costs. If the buyer is using hard-money or private capital for the purchase and rehab, interest on those funds for the holding period. Cash-only buyers skip this layer.

Profit margin. The buyer’s compensation for capital, time, and risk. Typical investor target margin is 10 to 20 percent of ARV.

Run the math on a $300,000 ARV home with $30,000 in repairs:

ARV: $300,000
Repair costs: -$30,000
Holding costs (6 months × $800): -$4,800
Resale costs (8% of $300K): -$24,000
Financing costs (6 months on $200K @ 10%): -$10,000
Profit margin (15% of ARV): -$45,000
Cash offer: $186,200

The 70 percent rule’s $180K matches the detailed math closely. The simplified rule trades a small amount of precision for the speed of running it in your head.

Why the Multiplier Isn’t 100 Percent

The biggest question sellers ask: “Why don’t you just pay me the ARV minus repairs?”

Three reasons the multiplier exists:

The buyer takes the renovation risk. Construction projects routinely run 20 to 40 percent over initial budget. Material costs change mid-project. Hidden damage gets exposed once walls open. A roof that looked salvageable turns out to need full replacement. The buyer absorbs all of this. The seller is paid based on the initial estimate.
The buyer takes the resale risk. When the renovated home goes back on the market, it sells at a specific price within a specific window. Sometimes faster and higher than expected, sometimes slower and lower. The buyer’s holding costs accumulate during the wait. The seller doesn’t share that risk.
The buyer needs to make money. This is the part no one wants to hear, but it’s the honest answer. A real estate investment business that runs at a 5 percent net margin doesn’t survive market downturns. Investors targeting 15 to 20 percent net margin on capital deployed are not gouging; they’re surviving.

The 70 percent multiplier (sometimes 65 to 75 percent depending on the buyer and market) is the industry’s settled compromise. It gives the buyer enough margin to absorb cost overruns and resale risk while still producing offers high enough that sellers accept them.

Variations by Buyer Type

Not all cash buyers use the same formula. Three main groups:

Local fix-and-flip investors. Use the 70 percent rule (sometimes 65 to 70 in hotter markets, 70 to 75 in cooler markets). Smallest-scale buyers. Most flexible on terms. Most likely to negotiate. Typically buy 4 to 20 homes per year.

Regional or national cash-buyer companies. Same rough formula but with more standardized processes. May use proprietary algorithms that factor in additional market data. Typically buy 100+ homes per year. Less negotiation flexibility per deal, more consistent process.

iBuyers (national iBuyers). Algorithmic offer calculators tuned for typical suburban homes in decent condition. The formula is closer to 80 to 90 percent of ARV minus a service fee of 5 to 8 percent and an inspection-driven adjustment after a walkthrough. iBuyers target a smaller margin per deal but operate at scale. They typically won’t buy homes with major repair needs.

If your home is in decent shape and you want maximum cash, an iBuyer offer is worth getting alongside a traditional cash buyer’s offer. If your home has significant repair needs, iBuyers usually pass and the cash investor route is the practical path.

How ARV Is Determined

The biggest variable in the offer formula is the ARV estimate. A cash buyer’s offer can swing by tens of thousands of dollars based on what ARV they’re working with.

ARV is built from comparable sales (comps). The strongest comps:

Same neighborhood, ideally same subdivision
Sold within the last 3 to 6 months
Similar square footage (within 15 percent)
Same bedroom and bathroom count
Similar lot size
Renovated condition (since we’re projecting your home’s value after renovation)

Weak comps that buyers sometimes use:

Same zip code but different neighborhood
Sold 12+ months ago
Significantly different square footage adjusted by per-square-foot math
Different school district

If you’re evaluating offers, ask the buyer to share the comps they used. Legitimate buyers do this without hesitation. A buyer who won’t share comps or only references vague “market data” is signal to dig deeper or shop elsewhere.

How to Evaluate an Offer

A few sanity checks:

Reverse-calculate the ARV from the offer. If the buyer says $180K with $30K in repairs, the implied ARV is ($180K + $30K) / 0.70 = $300K. Is that consistent with renovated comps in your neighborhood? Pull a few comps on Zillow or Redfin to cross-check.
Compare repair estimates. If multiple buyers have walked the property, do their repair estimates agree? A buyer estimating $80K in repairs when the property realistically needs $40K is anchoring you to a lower offer. Get a second opinion from a general contractor if it matters.
Compare offers against the listing-with-an-agent net. Estimate what you’d net from a traditional MLS sale: comps for the as-is condition minus 6 percent commission minus 2 percent seller closing costs minus any required repairs to pass inspection. The cash offer should be 15 to 25 percent below this, not 40 percent below.
Check the buyer’s history. Closed transactions on county records. Reviews. Years in business. References from past sellers if you can get them.

Why Margins Compound the Distance From Market Value

A common seller frustration: “The investor’s offer is $200K, but the renovated house just down the street sold for $310K. Why such a big gap?”

The gap is the sum of:

Renovation cost the buyer will spend (often $30K to $80K)
Holding cost during the renovation (often $5K to $15K)
Resale cost when the buyer relists (often $25K to $35K on a $310K sale)
Profit margin the buyer needs (often $35K to $50K)

Add it up: $95K to $180K of “missing money” between your offer and the eventual resale price isn’t profit hidden in the deal. It’s the actual cost of the renovation business model. The buyer’s net margin after all expenses is typically 10 to 15 percent of the resale price.

This doesn’t mean cash sales are always wrong. For homes with significant repair needs, time pressure, or other complications that make a traditional listing impractical, the cash route is often the better path even after factoring in the discount.

Frequently Asked Questions

What is the 70 percent rule for cash home buyers?

The 70 percent rule is a shorthand calculation: cash offer = (ARV × 0.70) − estimated repair costs. ARV is the home’s after-repair value. The 0.70 multiplier covers the buyer’s profit margin, holding costs, financing costs, and resale expenses. The repair cost is subtracted because the buyer must spend that to make the home market-ready.

Do all cash home buyers use the same formula?

The 70 percent rule (or 65 to 75 percent variations) is industry standard for fix-and-flip investors. iBuyers like national iBuyers use different algorithms that produce offers closer to 80 to 90 percent of ARV but only on homes in good condition, with a service fee of 5 to 8 percent.

How much less do cash home buyers offer compared to market value?

Typically 20 to 35 percent below the home’s actual market value if it were listed in its current condition. The gap reflects renovation costs (if any), the buyer’s profit margin, and the speed/certainty of a guaranteed close.

Can I negotiate a cash offer?

Yes, especially with smaller investors and local cash-buyer companies. iBuyer offers are algorithmic and less flexible. Most negotiations happen around the repair-cost estimate; if you can demonstrate that the buyer’s estimate is too high, the offer can rise.

How do I know if a cash offer is fair?

Reverse-calculate the implied ARV and check it against renovated comps in your neighborhood. Compare repair estimates across multiple buyers. Compare against your estimated net from a traditional listing. Ask the buyer to share the comps and repair budget they used. A buyer who refuses isn’t a fit.

Related guides

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If you want a real cash offer on your home to compare against this math, submit your property details here and we’ll respond within 24 hours. We’ll share the ARV we used, the repair estimate, and the math behind our number. No-pressure, no-obligation.

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