How much do cash buyers actually pay? (And why it's below retail.)

The formula, said plainly

Every cash buyer is running some version of this:

The discount factor is usually 70%. Sometimes 65%, sometimes 75%, sometimes 80%. The factor isn't picked from thin air — it's the number that, after you subtract rehab, holding, and selling costs, still leaves the buyer their target profit. The "70% rule" became standard because for a typical renovation in a typical market, 70% of ARV minus rehab is what makes the math work for a 6-month flip. Adjust the market or the renovation and the factor moves.

The factor isn't generosity or stinginess. It's the answer to a math problem. Below is the same problem, broken open.

What's inside the discount

When the buyer pays you 70% of ARV, the other 30% isn't going into the buyer's pocket. It's going into the costs of owning, fixing, and reselling the house. Most of it walks out the door before the buyer sees a profit dollar. Here's where the 30% goes.

1. Rehab cost — variable, real

Whatever the house actually needs to bring it to ARV. The HUD FHA 203(k) program documentation lists the standard rehab scope categories — roof, structural, plumbing, electrical, HVAC, mechanical, weatherization, well/septic, site grading, accessibility — and serious operators use that taxonomy plus RSMeans cost data to calibrate per-line estimates against contractor pricing in a specific market.

On a typical mid-market flip the rehab line runs $20,000 to $80,000 depending on scope. Cosmetic-only (paint, flooring, counters, fixtures): $15,000–$30,000. Cosmetic plus kitchen and bath: $30,000–$60,000. Add HVAC, electrical, or roof and you're at $40,000–$80,000. Full gut: $80,000–$150,000+ on a typical 1,500–2,000 sqft house.

2. Holding costs — 4 to 8 months of carry

While the buyer is rehabbing, they're paying carrying costs every month. On a $200,000 hard money loan at 11% APR (typical for a flipper using short-term debt), interest alone is roughly $1,830/month. Add property taxes ($150–$500/month depending on jurisdiction), insurance ($100–$200/month for a vacant rehab policy), utilities ($100–$300/month for power, gas, water during rehab), and the carrying cost runs $2,200–$3,000/month on a typical project. Six months of carry: $13,000–$18,000.

3. Selling costs — the retail flip-out

When the flipper relists at ARV, they pay retail selling costs out of the resale: 5–6% commission ($15,000–$18,000 on a $300k ARV), 1–3% closing costs ($3,000–$9,000 on a $300k ARV depending on state), staging ($1,500–$3,000), photos ($500–$1,000), and small repairs from the buyer's inspection ($2,000–$5,000). Total selling costs on the resale: $22,000–$36,000 on a $300k ARV.

4. Buyer's cushion — profit + risk margin

After rehab, holding, and selling costs, the flipper needs their actual profit. The target on a typical flip is $25,000–$50,000 net on a $300k ARV deal — roughly 8–17% of ARV depending on price point and market. Below $20,000 net, most experienced flippers won't take the project — the work isn't worth the risk of a budget overrun, a slow market on the flip-out, or a rehab surprise.

Worked example: $300,000 house, $40,000 rehab

Now let's run the formula on a real house. Three-bedroom, 1,500 sqft, ARV $300,000 in renovated condition, $40,000 of rehab needed (kitchen, bath, paint, flooring, HVAC).

• ARV: $300,000
• 70% of ARV: $210,000
• Minus rehab: −$40,000
• Maximum cash offer: $170,000

Now let's check the math by walking through the flipper's full P&L on this deal:

• Buy at $170,000
• Rehab spend: −$40,000 (running total: $210,000 invested)
• Closing costs to acquire: −$3,000 (running total: $213,000)
• 6 months carry on $170,000 + rehab draws: −$15,000 (running total: $228,000)
• Resell at ARV $300,000
• Selling costs (commission + closing + staging): −$25,000 (proceeds: $275,000)
• Net profit: $275,000 − $228,000 = $47,000

That $47,000 is the flipper's compensation for 6 months of project management, $213,000 of capital at risk, the chance of rehab surprises, and the chance the resale market softens while they're under construction. On a $300k ARV deal, that's a 15.7% net return on revenue — and most of the time that's the floor a serious flipper will accept. Below that, the project doesn't get done.

Why "the 70% rule isn't always 70%"

The factor flexes with the market and the house. Three examples of when it moves:

• High-priced markets where the absolute dollar profit is large. On a $1.2M ARV house in coastal California, even a 78% factor leaves $80,000+ of profit in absolute terms — flippers compete each other up to that factor because the dollars are big enough.
• Slow / declining markets where the ARV is uncertain. If the comps are softening month over month, flippers tighten the factor to 65% to leave themselves more room. ATTOM's quarterly reports have shown gross flip ROI compressing during downturns — operators respond by pushing the entry price down.
• Houses with hidden risk. Foundation issues, prior fire damage, environmental hazards, complex title — anything that adds uncertainty drops the factor even on a normal market house.

When a buyer says "the 70% rule," what they mean is "I'm running 65–80% depending on the deal." The number you see from a serious cash buyer reflects which factor applies to your specific house.

The buy-and-hold variation

A buy-and-hold buyer doesn't run the 70% rule. Their formula is a rent-to-price ratio (the 1% rule, or some local variant) and a debt service coverage calculation:

On a $2,100/month rental, the 1% rule produces $210,000. The condition factor adjusts that for what the buyer needs to spend before tenants can move in — usually $5,000–$15,000 for a rent-ready turnkey. So a buy-and-hold's max offer on a show-ready rental at $2,100 rent might be $200,000 to $215,000. That's why the buy-and-hold often pays more than the flipper on the same property.

The article on cash buyer vs wholesaler vs flipper vs iBuyer shows how the same $300,000 house gets four very different offers from these four players.

The retail-net comparison

The fair way to compare a cash offer to a retail listing isn't gross-to-gross. It's cash-to-retail-net. Take the same $300,000 house. If you list it on the MLS:

• List at $310,000, sell at $300,000 (typical 3% list-to-sale spread).
• Pre-listing prep: −$4,000 (paint, photos, minor fixes).
• Inspection credits to buyer: −$8,000 (typical mid-market hit).
• Listing commission (2.75%): −$8,250.
• Buyer-agent commission (2.5%): −$7,500.
• Transfer tax / title / attorney / prorations: −$4,000.
• 2 months of carrying cost while listed: −$5,000.
• Retail net: $263,250

Cash offer on the same house: $170,000 from the flipper, or $200,000–$215,000 from the buy-and-hold. The gap between cash and retail-net is $48,000 (buy-and-hold) to $93,000 (flipper) — meaningful, but much smaller than the gross-to-gross gap of $130,000. And the buy-and-hold gap of $48,000 is the cost of buying yourself out of 60–120 days of showings, inspections, appraisal risk, and the chance the deal collapses partway through.

The article on all-in closing costs walks the retail-net calculation in more detail, and off-market vs MLS walks the four-question decision framework that picks between the two paths.

Where the discount feels harshest

The 70%-of-ARV-minus-rehab math feels brutal when you've owned the house for 30 years and have $250,000 of equity built up. You hear $170,000 cash and the gut reaction is "that's robbery." It isn't — it's the floor at which the deal pencils for the flipper, and the floor is set by costs the flipper genuinely incurs, not margin they pocket.

Two situations where the math feels worst:

• Houses that need a lot of work in expensive renovation markets. Chicago, NY metro, Bay Area, LA — rehab costs in those markets are 30–50% above national average per RSMeans, which means the rehab subtraction is bigger, which means the cash offer is lower in absolute dollars even though ARV is high.
• Inherited or out-of-state houses where you have no emotional anchor on the gross retail price. The cash number lands clean against the alternative (carry the house from another state for 90 days while it lists). The retail-net is closer to the cash number than the gross retail comp suggests.

Where the discount feels smallest

On show-ready houses in good rental neighborhoods, the buy-and-hold pays close to retail. The buy-and-hold isn't renovating — they're applying $5,000–$15,000 of make-ready work and putting a tenant in. So the rehab subtraction that drives the flipper's number doesn't apply, and the factor runs 80–90% instead of 70%. The cash number can land within $20,000–$40,000 of retail-net, sometimes inside the cost-of-the-listing-path itself.

The trick is that you have to actually have a buyer in the network underwriting your house at the buy-and-hold lane. Most cash-for-houses postcards land you with a flipper — and the flipper is going to give you the flipper number, even if your house is actually a buy-and-hold candidate. We specifically route to whichever lane underwrites your house most aggressively, so the offer reflects the right comparison.

How to sanity-check any cash offer you're given

1. Estimate ARV honestly. Pull 3–5 closed comps from the last 90 days within 0.5 miles, same bed/bath, similar sqft, similar lot, in renovated condition. Average them.
2. Estimate rehab honestly. Walk the house with a contractor (or use a rehab calculator with HUD 203(k) scope categories) and price each major line. Don't lowball; flippers don't.
3. Apply the formula. ARV × 70% − rehab. That's the flipper's max offer. ARV × 80–85% − minor make-ready is the buy-and-hold's max offer if your neighborhood rents.
4. Compare to the offer you got. If the offer is meaningfully below the formula's max, the buyer is anchoring low and expecting you to negotiate up. If it's at or near the max, that's the real number.
5. Compare to retail-net. Use the formula in all-in closing costs. The gap between cash and retail-net is the actual cost of speed and certainty.

Our methodology page walks the math we use to build the number you see when you enter your address — all the inputs shown, all the line items visible. It's the same formula every cash buyer uses; the difference is that we put it on screen so you can see what you're trading off.