If you’ve ever received a cash offer on your home and wondered “how did they come up with that number?” — you’re not alone. Cash buyers don’t pull numbers out of thin air, but their methodology is different from a traditional appraisal or a real estate agent’s comparative market analysis (CMA).
Understanding how the math works helps you evaluate whether an offer is fair — and whether the trade-off makes sense for your situation.
The Foundation: After-Repair Value (ARV)
Everything in a cash buyer’s offer starts with ARV — After-Repair Value.
ARV is what your home would sell for on the open market after all repairs and updates are completed. Cash buyers renovate properties, so they’re not buying what your home is worth today in its current condition — they’re buying the potential, minus the cost to get there.
How ARV is calculated:
- Pull 3–6 recent comparable sales (“comps”) — similar homes that sold within the last 3–6 months, within a half-mile to one mile, with similar square footage and bedroom/bathroom count
- Adjust for differences in condition, features, and location
- Land on a realistic resale value for the fully renovated property
In a strong Southern California market, comps are usually readily available. In slower markets or rural areas, this gets harder — and buyers need to be more conservative.
The Formula Cash Buyers Use
The industry-standard framework is called the 70% Rule, though experienced buyers modify it based on the specific deal:
Maximum Offer = (ARV × 0.70) − Repair Costs
This isn’t a fixed law — it’s a starting point. Let’s break down what’s baked into that 30% buffer.
What’s Factored Into the Offer
1. Repair Costs
This is the most visible variable. A cash buyer will either do a walkthrough or, for remote offers, use photos/video to estimate:
- Cosmetic repairs: Paint, carpet, fixtures, landscaping — typically $15,000–$40,000 on a standard SoCal home
- Mechanical systems: HVAC, plumbing, electrical — $5,000–$25,000+ depending on age and condition
- Structural/foundation: Cracks, settling, drainage — $10,000–$50,000+
- Roof: $10,000–$20,000 for a full replacement
- Kitchen and bathrooms: Full updates often run $15,000–$40,000 per room at investor pricing
Buyers use contractor pricing, not retail — they have established crews and buy materials in volume. This estimate should be grounded in real costs, not inflated to justify a lower offer.
What you should do: Ask the buyer to share their repair estimate line by line. A legitimate buyer will show you what they’re factoring in.
2. Holding Costs
After the buyer closes, they hold the property for 3–6 months (typically) while they renovate and relist it. During that time, they’re paying:
- Financing costs / cost of capital: If they’re using a hard money loan or private capital, expect 8–12% annualized interest on the purchase price — on a $400,000 loan for 6 months, that’s $16,000–$24,000
- Property taxes: In California, roughly 1.1–1.25% of assessed value annually — about $4,500/year on a $400,000 property
- Insurance: Builder’s risk or landlord policy during renovation — $1,500–$3,000
- Utilities: $300–$600/month
- Property management / project oversight: If the buyer isn’t doing it themselves
Holding costs on a typical Southern California deal run $15,000–$40,000 depending on purchase price and timeline.
3. Transaction Costs (Buying and Selling)
Buying the property: title, escrow, recording fees — roughly 0.5–1% of purchase price.
Selling the renovated property: agent commissions (5–6%), closing costs (1–2%), staging, and listing prep. On the back end, a $600,000 sale might cost $42,000–$48,000 to sell.
Total transaction costs across both sides: typically 4–8% of ARV.
4. Profit Margin
Investors need to make money — that’s the business. A reasonable and transparent margin on a standard flip is 10–15% of ARV. This is what allows the business to operate, take on risk, and keep buying.
If a buyer is offering you well below what the math suggests (i.e., their margin seems to be 25–30%+), that’s a signal to push back or get other offers.
A Real Example
Let’s walk through actual numbers on a hypothetical home in the Inland Empire.
Property: 3 bed / 2 bath, 1,400 sq ft, built 1978. Original kitchen and bathrooms, worn carpet throughout, roof needs replacement.
Step 1: ARV Comparable renovated homes nearby are selling for $540,000–$560,000. Buyer uses $545,000 as a conservative ARV.
Step 2: Repair Estimate
- Kitchen update: $18,000
- 2 bathroom updates: $14,000
- Flooring (carpet + tile): $8,000
- Roof replacement: $16,000
- Paint (interior + exterior): $6,500
- HVAC service + minor plumbing: $4,500
- Landscaping + misc: $3,000
- Total repairs: ~$70,000
Step 3: Holding Costs
- Financing (6 months at 10% on $280,000 purchase): $14,000
- Taxes, insurance, utilities: $5,000
- Total holding: ~$19,000
Step 4: Selling Costs (back-end)
- Agent commissions + closing: $32,700 (6% of $545,000)
- Staging + misc: $3,000
- Total selling costs: ~$35,700
Step 5: Target Profit Buyer targets 12% of ARV: $65,400
Offer calculation: $545,000 − $70,000 − $19,000 − $35,700 − $65,400 = ~$355,000
A legitimate offer on this home in that condition would likely land in the $340,000–$365,000 range depending on the buyer’s cost of capital, risk tolerance, and local market conditions.
Why Offers Vary Between Buyers
Different cash buyers will give you different numbers — sometimes by $20,000–$40,000 — because:
- Different ARV estimates: Buyers interpret comps differently
- Different repair estimates: Experience and contractor relationships vary
- Different cost of capital: A buyer using their own cash needs less margin than one using hard money loans
- Volume and overhead: Large operations can work on thinner margins; small investors may need more cushion
- Deal criteria: Some buyers are hungry for inventory; others are conservative
This is why getting 2 to 3 offers is always a good idea. It costs you nothing, and the spread tells you a lot.
How SHH Buys Homes Calculates Offers
We use the ARV-based approach described above, with full transparency. Here’s what that means in practice:
- We pull real comps from the MLS — the same data agents use
- We walk the property or review detailed photos/video to build a real repair estimate
- We account for actual carrying costs based on our cost of capital
- We target a fair — not inflated — profit margin that allows us to keep buying homes and serving Southern California homeowners
We’ll show you our comp analysis if you ask. We’ll explain the repair items we’re factoring in. If there’s a line item that doesn’t make sense to you, ask us about it — we’d rather have that conversation than have you feel like you left money on the table.
We buy homes throughout Southern California — Los Angeles, San Bernardino, Riverside, and Orange County. Whether you’re dealing with a distressed property, a tight timeline, or just want to skip the traditional listing process, we’re here to make it simple.
Learn how a cash sale compares to listing with an agent or get your free offer on the homepage.
What to Do If an Offer Seems Low
- Ask for the comp analysis — what ARV did they use and why?
- Ask for the repair estimate — line by line
- Get a second offer — from another cash buyer or from a local agent’s CMA
- Do your own comp research — Zillow, Redfin, and Realtor.com all show recent sales nearby
If an offer is significantly below what the math suggests it should be, either the buyer is being aggressive on their margin or they’re estimating repairs very conservatively. Either way, push back with data.
The Bottom Line
A fair cash offer isn’t the same as market value — and that’s okay, because you’re paying for speed, certainty, and the buyer taking on all the risk and cost of repairs. The real question is whether the net amount, after all your costs are removed from a traditional sale, is close enough to justify the trade-off.
For a lot of Southern California homeowners, it is. For others, a traditional listing wins on net proceeds. Understanding the math lets you make that decision clearly.
Get your free cash offer from SHH Buys Homes. We’ll show you exactly how we calculated it, and you’re under no obligation to accept. Fill out the form below or call us at (626) 414-4859 — we’ll respond within 24 hours.