Staten Island, NY · Member since 2013 · 117 posts · 52 votes
I get asked this a lot by homeowners who got a cash offer and want to know if it's fair. Here's the quick way I look at it.
1. Figure out what the house would sell for fixed up, using recent sold comps nearby, not list prices.
2. Get a rough repair number. A walkthrough with a contractor beats guessing.
3. Most flippers work backwards from that fixed up value, subtracting repairs, holding costs, closing costs on both ends, and their profit. That gap is why cash offers come in well under retail.
4. Compare the offer to what you'd net listing it, after commission, repairs you'd have to do, and months of carrying costs.
5. Ask for proof of funds and check how much earnest money they put down and how long their inspection period is.
Sometimes the cash offer really is the better net once you add up time and repairs, sometimes it's way off. What else do you all look at when someone asks you this?
The first thing I check is what the homeowner would actually net if they listed the home, not just the headline offer number. A cash offer can look low until you subtract the repairs, carrying costs, showings, and time that a traditional sale can require, and it can also look generous until you compare it with recent comparable sales in similar condition. I would look at recent sold homes nearby, get a realistic repair picture, and then compare the cash net with a listing net side by side. I would also read the terms carefully: proof of funds, earnest money, inspection period, and closing timeline. Fair is personal too, because speed and certainty matter more to some sellers than squeezing out every last dollar.
@Jimmy Samaha good breakdown. I'm an agent and investor in Louisville, and I'd split this into two different situations, because "cash offer" gets used for both.
The first is the one you're describing, an investor buying a house that needs work. In that case, the seller should go in expecting the number to be less than what they could get if they fixed it up and listed it. That's not the investor being unfair. That's the deal. They're taking on the repairs, the holding costs, and the risk, and the discount is what pays for that. Your math is how you figure out whether the discount is reasonable or way out of line.
The second one is where I think sellers get confused. Cash offers aren't always from investors, and they aren't always on houses that need work. Sometimes a buyer comes in with cash on a nice, move-in ready house just to make the offer look stronger, and they expect a lower price because of it. But if I have a good house that's going to appraise and doesn't have any major inspection issues, I place no real value on the offer being cash. The main things cash protects a seller from are a low appraisal and a loan falling through. If the house is going to appraise and the buyer is solidly qualified, a financed offer at a higher price is usually the better deal.
So when a seller asks me if a cash offer is fair, the first thing I ask is which kind it is. If the house needs work, run it like you laid out. If the house is in good shape, I compare it to a financed offer on price and terms and don't give the word "cash" much weight on its own.