Most cash home buyers won't show you how they came up with their offer. They send you a number, tell you it's their best, and expect you to take it or leave it. We think that's backwards.
Here's the math. Every cash buyer in the country uses some version of it. Once you understand it, you'll know why offers look the way they do — and whether a cash sale makes sense for your situation.
The formula
Offer = (ARV × 70%) − Repairs − Fee
That's it. That's the whole thing. Every piece has a reason. Let's go through them.
What ARV means
ARV stands for After-Repair Value. It's what your house will sell for on the open market after it's been fixed up, painted, and staged.
Good cash buyers figure out ARV by looking at recent sales of similar houses within half a mile of yours. Same size, same bedroom count, same general condition after renovation. If 5 houses on your block sold in the last 6 months for around $220,000 each after being renovated, your ARV is about $220,000.
Bad cash buyers lowball ARV to pad their margin. Don't let them. If you're looking at comparable sales yourself on Zillow or Redfin, you can check the number. If it looks wrong, say so.
Why 70%
The 70% multiplier is standard across the real estate investment world. It's not magic — it's the percentage that covers the costs the cash buyer eats on the back end.
Here's what 70% has to cover:
- Holding costs — property taxes, insurance, utilities, and interest on whatever loan funded the purchase. Usually 4 to 6 months of holding time.
- Resale agent commissions — about 6% of the eventual resale price when the investor sells the fixed-up house.
- Closing costs on both ends — title insurance, transfer tax (big in Philly — 4.278%), recording fees, and other miscellaneous closing expenses.
- Contractor overruns — repair budgets always go over. The 70% builds in a cushion.
- Investor profit — the buyer has to make something for taking on the risk. Usually 10-15% of ARV.
If you do the math, 70% works out to roughly break-even after all those costs, with a reasonable profit on the back end. That's why the number is what it is.
Why your repair estimate matters
The repair number is where most sellers get surprised. A Philly rowhome that needs a new roof, HVAC, kitchen, bath, electrical, and plumbing updates can easily have a $60,000 to $80,000 repair budget.
Good cash buyers use real contractor pricing, not made-up numbers. They'll walk you through the repair list so you can see where every dollar goes. If you disagree with a line item, say something — sometimes they adjust.
Bad cash buyers pad the repair number to make their offer seem more justified. If a repair estimate looks way higher than it should, push back.
What the fee is
Most cash buyers charge a fee of 8% to 12% of the purchase price. It covers their work: research, negotiation, coordinating the title company, showing up at closing.
Honest buyers disclose the fee on the offer sheet. You see it before you sign anything. Sketchy buyers hide it or never mention it until you ask.
What the formula actually produces
Let's run a real example. Say you have a 3-bedroom Philly rowhome that would sell for $200,000 after renovation. The house needs $45,000 of real contractor work — new roof, new HVAC, kitchen, bath, flooring.
- ARV: $200,000
- × 70%: $140,000
- − Repairs: −$45,000
- − Fee (10%): −$9,500
- Offer to you: $85,500
That's 43% of the ARV. That's typical. Most cash offers land between 25% and 55% of ARV depending on how much work the house needs. More work = lower percentage. Less work = higher percentage.
When the math says "don't sell to a cash buyer"
If your house is in good shape and doesn't need much work, the repair subtraction is small, and the offer lands at 50-55% of ARV. That's still well below retail.
If you can wait 3-6 months and list with a traditional real estate agent, you'll net 10-20% more than a cash offer — even after paying 6% in commissions. For a $200,000 house, that could be $20,000-$40,000 more in your pocket.
Cash sales make sense when the house needs real work, when you can't wait, or when the speed and certainty is worth more than the extra money.
When the math does make sense
Cash offers work when:
- The house needs $40,000+ in repairs and you can't (or won't) do them
- You need to close in 2-8 weeks, not 4-6 months
- You're out of state and can't manage a listing
- Multiple heirs need to split proceeds cleanly
- The house has complications: code violations, back taxes, tenants, squatters
- You just want to be done dealing with the property
That's who we built Covenant for. If that's you, call us. If it's not, we'll tell you.
Watson Saintsulne is the Director of Sales at The Covenant Real Estate Investment Group LLC. Covenant has closed 55+ cash sales in Philadelphia since 2021.