How Cash Home Buyers Calculate Offers (ARV, Repairs, and the 70% Rule) With a Worked Example
If you have ever gotten a cash offer and thought, "How on earth did they come up with that?", you are not alone. Cash offers can look low compared with what you hear homes are selling for. Understanding the math will not make an offer higher, but it will help you judge whether it is fair and compare buyers.
The four building blocks
1. After-repair value (ARV)
ARV is what the house would likely sell for once it is fixed up to the standard of comparable homes nearby. Buyers estimate it from recent sales of similar homes: same area, similar size, age, bedrooms and condition after repairs.
A Utah-specific wrinkle: Utah is a non-disclosure state, meaning sale prices generally are not listed in public county records the way they are in many states. Buyers and agents rely on MLS data and their own knowledge. If a buyer's ARV seems off, ask which comparable sales they used.
2. Repair costs
Next, the buyer estimates the cost to bring the house to that after-repair standard: roof, systems, flooring, kitchens, baths, paint, landscaping and anything structural. Good buyers walk the house and build a line-item estimate. They also add a contingency for things they cannot see, like what is behind the walls.
3. Holding and selling costs
These are the costs of owning the house while it is fixed and resold: loan or capital costs, property taxes, insurance, utilities, HOA dues, plus the costs of reselling it later, such as agent commissions and closing costs. These add up more than most sellers expect.
4. Profit
Investors take on risk: repairs can run over, markets can shift, and the house might sit. Profit is what compensates them. Reasonable people disagree on what margin is fair, and it depends on the size and risk of the project.
The formula
Put together, a buyer's maximum offer looks like this:
Offer = ARV - repairs - holding costs - selling costs - profit
Some buyers also subtract their own closing costs when buying, and some cover the seller's closing costs instead. Always check who pays what in the written offer.
The 70% rule of thumb
You may hear investors mention the "70% rule": the maximum purchase price is about 70% of ARV minus repairs. It is a shortcut, not a law. It bundles holding costs, selling costs and profit into the 30%. On higher-priced homes, or in fast markets with lower holding costs, buyers may pay more than 70%. On risky projects or in slow markets, they may pay less.
A worked example
Hypothetical round numbers for illustration only. They are not Utah market data and not an offer.
| Line item | Amount |
|---|---|
| After-repair value (ARV) | $400,000 |
| Repairs, with contingency | -$50,000 |
| Holding costs (taxes, insurance, utilities, capital, several months) | -$15,000 |
| Resale costs (commissions, closing costs, concessions) | -$28,000 |
| Buyer's closing costs to purchase | -$4,000 |
| Profit for risk | -$40,000 |
| Offer | $263,000 |
Using the 70% rule instead: 70% x $400,000 = $280,000, minus $50,000 repairs = $230,000. The detailed method lands higher here, which shows why the shortcut is only a rough screen.
Why offers differ between buyers
- Different ARVs: one buyer picks better comps than another.
- Different repair plans: a light cosmetic refresh vs a full remodel.
- Different exit plans: a buyer who will keep it as a rental may pay more or less than one who will resell.
- Wholesale fees: if the buyer plans to assign the contract to another investor, there is another fee in the chain. See our post on wholesalers.
How to evaluate an offer
- Ask the buyer to walk you through their ARV, repair estimate and costs.
- Check their comps against what a local agent tells you.
- Get a rough repair bid for the big items if you can.
- Compare the net, what you walk away with, against listing after commissions, repairs and time.
- Get more than one written offer.
Things that can raise (or lower) an offer
Some factors are in your control. Clear access for the walkthrough lets a buyer see everything, which shrinks the "unknowns" cushion. Sharing any inspection reports, repair bids or permits you already have does the same. A flexible closing date can help a buyer plan, and a clean title with no surprise liens avoids delays that cost money. On the other side, hidden problems that surface after a contract, tenants who will not allow access, or a very tight deadline can all push an offer down, because they add risk. None of this means you should spend money fixing things first. Small cosmetic work rarely changes a cash buyer's numbers much. Information and access are what move the needle.
How we do it
We walk the house, share how we see the after-repair value and repairs, and put our offer in writing. If you think we missed something, tell us. If listing will clearly net you more, we will say so.
The bottom line
A cash offer is not a mystery number. It is ARV minus repairs, costs and profit. Once you know the pieces, you can judge fairness and compare buyers with confidence.
General information only, not legal, tax or financial advice. Laws and programs change; talk to a Utah attorney, CPA or HUD-approved housing counselor about your situation.