Step 1: After-repair value (ARV)
ARV is the price the home would likely sell for once it is fully renovated. It comes from recent sales of comparable homes nearby: similar size, age, lot and finish, ideally sold in the last few months and within a short distance.
Step 2: Repair and renovation costs
The buyer prices the work the house needs: roof, foundation, systems, kitchen, baths, flooring, paint and permits. Experienced buyers add a contingency, because older houses often reveal more once walls are opened.
Step 3: Holding, financing and selling costs
While the house is being renovated, the buyer pays property taxes, insurance, utilities and financing costs. When it sells, there are agent commissions, title and closing costs. Together these are often a meaningful share of the sale price.
Step 4: Risk and profit
Renovation carries risk: cost overruns, delays and market changes. The buyer needs a margin that justifies taking it on.
A worked example
These numbers are illustrative only.
| After-repair value | $500,000 |
|---|---|
| 70% of ARV | $350,000 |
| Estimated repairs | − $80,000 |
| Rule-of-thumb maximum offer | $270,000 |
In practice we build the offer line by line from real costs rather than a fixed percentage, and we will walk you through our numbers.
How this compares with listing
A buyer who lives in the home pays for the finished product, so a listed, renovated home sells for more. The question for a seller is how much of that difference would be spent on repairs, time, commissions and risk. See cash offer vs. listing.
General information, not legal, tax or financial advice. Laws and figures change; check the specifics for your situation.
Frequently asked questions
Is a cash offer always lower than market value?
For a house that needs work, a cash offer is usually below the price of a renovated home, because the buyer takes on the repairs and risk. For a house in excellent condition, listing it often gets more.
Can I negotiate a cash offer?
Yes. Share any information that affects value, such as recent repairs, permits or a contractor’s quote, and ask how the offer was built.