How much less than market value do cash home buyers pay?
There's no standard discount: a cash buyer's offer starts from what the house would sell for in good condition and subtracts the repairs, the costs of owning and reselling it, and the buyer's profit, so the more work a house needs, the further below that price the offer lands. The fair way to judge an offer is by what you'd take home from it next to what you'd net from a listing after commissions, repairs and the months it takes to sell.
By Andy Rong
Published
This guide is general information, not legal, tax or financial advice. Laws change and every situation is different, so check yours with a professional.
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How do cash buyers decide what to offer?
Most cash buyers are investors who plan to repair the house and resell or rent it. They usually work backward from what the house would sell for once it's fixed up, often called the after-repair value, and subtract what it will cost them to get there:
- The repairs and updates the house needs.
- Holding costs while the work is done and the house is for sale again: property taxes, insurance, utilities and the cost of the money tied up in it.
- The costs of reselling: agents' commissions and closing costs on the next sale.
- A profit for the risk that repairs cost more or the house sells for less than planned.
Some house flippers boil this down to a rule of thumb that Investopedia describes: pay no more than 70% of the after-repair value, minus the cost of the repairs. Not every buyer uses it, and it's a starting point for an investor's math rather than a price anyone owes you, but it shows why a house that needs a lot of work draws offers well below what it would be worth fixed up.
Why is a cash offer lower than a listing price?
Because the buyer takes on work and costs that a listing leaves with you. A list price assumes a house a lender will finance and a buyer will move into; when the house needs work, someone pays for it, either you before you list or the buyer through a lower price. A cash offer also replaces costs a listing has: the commission, the repairs a buyer asks for after the inspection, and the months of mortgage, taxes and insurance while the house is for sale.
So the gap between a cash offer and a list price isn't the right number to look at. The gap between what you'd take home from each is. Cash offer or list with a realtor lists the costs to subtract from each side.
How do I know if a cash offer is fair?
- Get at least two written offers. A single offer has nothing to compare against.
- Ask each buyer how they reached the number, and what they think the house needs.
- Look up recent sales of similar homes near you, in their current condition and fixed up; a local agent can pull them, and many county property records are online.
- Get a rough repair estimate from a contractor if the house needs major work, so you know what the buyer is pricing in.
- Compare what you'd take home, not the price, and ask what could change the offer before closing.
Can a cash buyer lower the offer after seeing the house?
It depends on the contract. Many cash contracts give the buyer an inspection period, and some let the buyer cancel or ask for a lower price if the inspection finds problems. Read that part of the contract before you sign, and ask the buyer, in writing, what would change the price. A buyer who sees the house or its photos before making a final offer has less reason to change it later.
Selling to Covent Homes
If you'd like a cash offer to put beside the others, here's what every Covent Homes offer includes. How Covent works out its number is in the questions below.
No repairs or cleaning. You don't repair, paint or clean up for us. We buy the house in the condition it's in.
No showings before you sign. Nobody walks through your house before we have a signed contract, so there are no strangers in your home while you decide.
You pick the day. Choose a closing day 14 to 60 days out, and you get paid at closing.
Closing costs paid. Covent pays the closing costs, including title and escrow fees. You pay off your own mortgage or liens.
Stay 10 days free. After closing, you can stay in the house up to 10 days at no cost, so there's no rush to move.
Cash, no financing. We pay cash, with no lender and no financing contingency, so a buyer's loan can't fall through.
Questions homeowners ask
Is there a typical percentage cash buyers pay?
Not for as-is offers: no government or industry group publishes one, and the percentages quoted online come from individual buyers. Research on similar homes has found cash buyers pay less than buyers with a mortgage, about 10% less in a study of roughly two million sales, but an offer on a house that needs work is lower still, because the repairs come out of it. Judge an offer by what you'd take home, not by a percentage.
Do cash buyers pay more for houses in good condition?
Usually, because there's less work to price in. But a move-in-ready house is also the kind that sells well on the open market, so listing it may net you more if you have time.
How does Covent decide on its offer?
Covent's estimated offer starts from recent sales of similar homes nearby. Your photos or a visit show Covent what the house needs, and your final cash offer reflects that, plus what it costs Covent to buy, hold, and resell it.
Do you need to see the house?
Yes, after you sign the contract. You pick a 2-hour window on a weekday between 9 and 5, Covent confirms it, and an inspector walks through. You don't need to clean or fix anything first. Covent may visit again before closing.
Am I obligated to accept the offer?
No. Covent's offer is free, and your estimated and final offers are only offers. Nothing is binding until a written purchase contract is signed by you and Covent.
Read more about your situation
Sources
The public pages this guide's facts and figures come from.
- Investopedia: How to Flip Houses: A Guide for Novices
About the author
Andy Rong leads Covent Homes, which buys houses for cash, as-is, from homeowners in Texas, Georgia, Tennessee, Florida, Indiana, Missouri, Kansas, and North Carolina.
Andy writes these guides to answer the questions homeowners ask before they sell, in plain words, with a public source for every fact and number.
Andy isn't a lawyer, an accountant or a financial adviser. The guides give general information, and each one says when it's time to talk to one.