Watch: How We Calculate Your Cash Offer
One of the biggest questions we get is: how do you come up with the offer price? It is a fair question. If someone is going to offer you a big chunk of money for your home, you should know exactly how they arrived at that number. So let me pull back the curtain and show you our exact process.
Step 1: After-Repair Value (ARV)
The first thing we do is determine what your home would be worth if it were in perfect, move-in-ready condition. We call this the After-Repair Value, or ARV. This is not what Zillow says. This is based on actual closed sales, meaning homes that have actually sold within the last 3 to 6 months within a mile of your property.
We look at homes that are similar to yours in size, layout, and lot size, but that have been fully updated. If your home is a 3-bedroom, 2-bath, 1,200-square-foot house, we find recent sales of similar homes in your neighborhood that were in top condition. The average of those sale prices gives us the ARV.
Step 2: Estimated Repair Costs
Next, we estimate how much it would cost to bring your home up to that move-in-ready condition. We have a team that evaluates repair costs based on the information you provide and our knowledge of local contractor pricing.
Here is a rough idea of what common repairs cost in the Central Valley. Roof replacement: $8,000 to $14,000. HVAC replacement: $5,000 to $8,000. Kitchen remodel: $10,000 to $20,000. Bathroom remodel: $5,000 to $10,000. Flooring throughout: $4,000 to $8,000. Interior and exterior paint: $3,000 to $6,000. Foundation repair: $5,000 to $25,000.
We add these up based on what your specific property needs. A home with a newer roof and working HVAC but an outdated kitchen has very different repair costs than one that needs everything.
Step 3: Our Operating Costs
We are a business, so we have costs too. These include closing costs on both the purchase and eventual resale, insurance and taxes while we own the property, utilities, contractor management, and administrative costs. These typically add up to 8 to 12% of the ARV.
We are transparent about this because we want you to understand that the gap between our offer and the ARV is not all profit. A significant chunk goes to actual costs of buying, renovating, and reselling or renting the property.
Step 4: The Formula
Here is the basic formula we use. Cash offer equals ARV minus repair costs minus our operating costs minus a margin for risk and return. Let me give you a real example.
Say your home has an ARV of $300,000. Repair costs are estimated at $30,000. Our operating costs are $30,000 (10% of ARV). We target a margin of about $25,000 to $30,000 to account for risk and provide a reasonable return. That gives us an offer of $300,000 minus $30,000 minus $30,000 minus $27,500, which equals $212,500.
Now let me show you what you would net from a traditional sale of the same home after repairs. Sale price: $300,000. Minus $30,000 in repairs you pay upfront. Minus $18,000 in agent commissions (6%). Minus $4,500 in closing costs (1.5%). Minus $5,000 in holding costs for 4 to 5 months. Your net: $242,500. But you spent $30,000 out of pocket first and waited 4 to 5 months.
The difference between $212,500 cash now and $242,500 after repairs and waiting is $30,000. But that $30,000 costs you $30,000 in upfront repair investment and 4 to 5 months of your time. For many sellers, especially those who cannot afford the repairs or do not have the time, the cash offer is the better path.
Why Our Offers Are Higher Than Most
I mentioned earlier that most cash buyers use this same basic formula but arrive at much lower numbers. Here is why ours are typically higher.
First, we use accurate repair estimates based on local contractor relationships, not inflated numbers to pad our margin. Second, we keep our operating costs lean because we do not have expensive office leases or large sales teams. Third, we target a lower margin per deal because we focus on volume and long-term relationships rather than maximizing profit on every single transaction.
We also hold some properties as rentals rather than flipping them, which means we can accept a lower purchase discount because our return comes over time through rental income rather than a quick resale.
Frequently Asked Questions
What is After-Repair Value (ARV)?
ARV is the estimated market value of your home if it were in perfect, move-in-ready condition. It is based on recent comparable sales of similar updated homes in your neighborhood.
How accurate are the repair cost estimates?
Our estimates are based on actual contractor pricing in your local market. We have relationships with contractors throughout California and update our cost data regularly.
Can I see the comparable sales you used?
Yes. We are happy to share the comparable sales data that informed our offer. Transparency is a core part of how we operate.
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