How do cash buyers come up with their number?
We hear from sellers every day who are surprised by their first investor quote.
The truth is, figuring out exactly how do cash home buyers calculate offers comes down to a very rigid mathematical formula. Investors work backward from what they think your house will sell for after they fix it up, subtracting repairs, holding costs, and their required profit.
What is left at the bottom of that spreadsheet is their offer to you.
Once you see the math, it is easier to judge whether an offer is fair for your situation. You can then comfortably compare it with a traditional market sale using our breakdown of a cash offer vs. listing.
The basic formula
The fundamental after repair value formula relies on simple subtraction. A common rule of thumb among real estate investors looks like this:
Offer = (After-repair value × a percentage) − repairs − other costs
Many buyers use 70% to 80% of the after-repair value (ARV) as their starting point, then subtract the repair budget. This percentage acts as a buffer to cover their holding costs, resale costs, and required profit margin.
We see local buyers adjust this percentage based on the age of the property. For example, census data shows over 43% of Duluth’s housing stock was built before 1940. Because nearly half of our local homes carry higher risks of hidden issues like old electrical wiring or asbestos, local investors often use a more conservative 65% multiplier.
Step by step
Buyers break the calculation down into six distinct categories. Every cash offer you receive is built on these exact components.
- After-repair value (ARV). This is what the house would sell for after a full renovation. It is based strictly on recently sold, updated homes in your immediate neighborhood.
- Repair estimate. This covers the kitchen, baths, roof, flooring, paint, and major systems. In Duluth, buyers heavily factor in local Inflow and Infiltration (I&I) sewer compliance work, where a trenchless sewer line replacement alone typically costs between $5,000 and $12,000.
- Holding costs. These expenses include property taxes, insurance, utilities, and expensive loan interest while they renovate and resell. In brutal Minnesota winters, keeping heat running in a vacant house adds hundreds of dollars a month.
- Resale costs. Buyers deduct the commission they will pay when they eventually sell the flipped house. This also includes the Minnesota state deed tax of 0.33%, title fees, and closing costs.
- Profit. This is the financial margin that makes the deal worth their time and risk.
- Assignment fee (wholesalers). If the buyer is a wholesaler, they will sell your contract to a cash buyer and keep a fee. We track industry data, and the national average wholesaler assignment fee in 2026 is around $13,000 per deal.
A worked example
Let’s look at exactly how a buyer calculates an offer for a typical older property. Assume a 1930s Duluth home would sell for about $300,000 if it was completely modernized.
| Item | Amount |
|---|---|
| After-repair value (ARV) | $300,000 |
| 75% of ARV | $225,000 |
| Minus estimated repairs | -$40,000 |
| Investor’s offer | $185,000 |
| Minus wholesaler assignment fee (if any) | -$13,000 |
| Offer to you from a wholesaler | $172,000 |
This table is a realistic illustration rather than a guaranteed quote. A $40,000 repair budget gets eaten up quickly if the buyer needs to fix a crumbling foundation alongside cosmetic updates.
The exact same house in decent shape might sell on the open market for $260,000 in its current condition. Even after paying a real estate agent commission and closing costs, that seller could walk away with much more cash than they would from the investor.
Our team always recommends looking at the net proceeds. If the required structural repairs are severe, the financial gap between a cash offer and a traditional sale could be much smaller. That is why comparing net sheets matters so much.
The key insight
A cash offer isn’t a judgment about your home’s worth. It’s the investor’s math for their own profit. The question for you is what you’d keep under each option.
Who’s making the offer?
The final number often depends heavily on the specific type of buyer you are dealing with. Cash buyers typically fall into one of four distinct categories:
- Fix-and-flip investors buy, renovate, and resell for a single lump-sum profit. They tend to make the lowest offers because they take on the most renovation risk.
- Landlords buy properties to rent out for long-term income. They often pay a bit more for homes that are already rent-ready, especially near the University of Minnesota Duluth.
- Wholesalers put your home under contract and immediately sell that contract to another local investor for an assignment fee.
- iBuyers are large corporate entities like Opendoor that buy directly with an online offer. They typically charge service fees around 5% to 6% and deduct repair costs after a formal inspection.
Knowing which type of buyer you are dealing with tells you a lot about their math. Ask them directly what their business model is, and always read the purchase agreement for assignment language.
Can I negotiate a cash offer?
You can often negotiate a cash offer to get a better price or more favorable terms. The initial quote is rarely their absolute maximum number.
There are several proven ways to improve your negotiating position:
- Get more than one offer from different local companies.
- List the house as-is on the MLS, where many investors and regular buyers will see the home at once.
- Share real, written repair quotes from local contractors instead of letting the buyer guess high on their repair estimates.
- Ask about the inspection period and demand standard earnest money. A stronger contract matters just as much as a high price.
We advise sellers to look for earnest money deposits of at least 1% to 2% of the purchase price. A buyer offering only $100 in earnest money is a major red flag. Our detailed how to vet a “we buy houses” offer guide covers the exact contract terms you need to check.
When does the cash math work for sellers?
The discounted math makes sense for a seller when the property requires massive structural work, the deadline is tight, or the house is difficult to show. The steep discount buys you immediate speed and certainty.
Understanding why are cash offers low is essentially about the transfer of risk. When a buyer takes on a 90-year-old property, they are absorbing the financial risk of finding asbestos behind the walls or a cracked foundation under the basement floor.
When the house is in decent shape and similar homes are selling near their list price in a couple of weeks, the traditional market usually wins.
We tell homeowners that the only objective way to know the right path for your specific situation is to put both options side-by-side on one net sheet. Run the numbers, evaluate your timeline, and make the choice that leaves you in the best financial position.
This guide is general information about selling a home in Duluth and Minnesota. It is not legal or tax advice. Rules and fees change, so confirm details with the City of Duluth, your county, your title company, an attorney or a tax professional as needed.
