So, how do you come up with a cash offer for my house and how can I trust it? That’s what we want to talk about in this video.
“How Do You Come Up With a Cash Offer for My House?”
Hey everyone! This is Eric Sztanyo from WeBuyNKYHouses.com where we buy houses fast in Cincinnati and Northern Kentucky. I wanted to make a quick video to explain how we come up with the dollar amount for the cash offer that we might give you for your house.
So, maybe you’ve been around town and you’ve seen these “we buy houses” signs or “we buy houses for cash”. Or, maybe you’ve seen companies by Googling that phrase, and you’re thinking, “I don’t know about that. It seems kind of shady.” And, you’re trying to research that a little bit more.
I wanted to give just a quick definition and walk through how we get to that cash offer. It’s really simple. Every single person we talk to when we go out and look at their house and make them a cash offer, we run through this exact same process.
I just wanted to peel back the curtain and let you know how we do it at We Buy NKY Houses. Now, this might not be how every investor or home cash buyer out there does it. But, I wanted to walk through the process of what we do. Then, I may do another video that shows what you can do even if that cash offer doesn’t work for you.
So, here’s what we do. It’s really simple.
Step 1: Determine the ARV
First, we look at what is called the ARV. Now, the ARV stands for the After Repair Value of your house. So, what we are doing is … let’s say you are a 3 bedroom 2 bathroom house in Erlanger, KY. What we’ll do is get on the MLS, because I’m a real estate agent, and I’ll look at all of the other recent sales of 3 bed 2 bath houses that have sold in maybe the last 6 months or a year. What I’m looking for are those homes that have been rehabbed with new kitchens and baths, etc. I want to look at the top of that value and ask, “what is the highest that home could sell for?”. We call that the After Repair Value.
If we were to come into your house and do all of these updates and update the roof, floors, kitchen, furnace and all of these items that may need to be updated in your house, what then could we sell your house for at its maximum price.
Step 2: Subtract the Expenses
So, that’s where we start, the ARV, and then we just back out the expenses. This is a very simple math problem.
The first expenses are the repairs themselves. It costs money to buy new tile or cabinets or a roof. Plus, there is the labor. It costs money to make those updates. We come in and look at your house and then determine what the estimate will be to make those updates. Those costs include the materials, the labor, managing the process, etc. So, that’s the first cost.
The next expense that not a lot of sellers think about is what we call our fixed costs. Now, these expenses aren’t usually as high as the repair costs, but they still need to be accounted for.
Part of the fixed costs include the closing costs. When we come up with a cash offer for your house, we also include paying your closing costs. So, those costs may be 1%-2% of the house. It just depends on the lender or title company you are using. And then, when we go to sell the house to an owner occupant after we have done the rehab work, we are typically going to pay those closing costs again. And on that back end of selling the house, we also need to pay a real estate agent their commissions. All of that is included in the fixed costs.
The other piece that needs to be included in our fixed costs is the cost of insurance and utilities while we are actually doing the repairs. A rehab project can easily take 2-3 months, so those costs need to be factored in as well.
FIXED COSTS = CLOSING COSTS + REAL ESTATE COMMISSIONS + UTILITIES + INSURANCE
Step 3: Subtract the Investor’s Profit
The last cost is the investor’s profit, and every time I go out and talk to a seller, they understand the fact that we are investors. We’re not going to come out and buy your house and flip it without the opportunity to make a profit.
We are able to help a lot of people who are in a lot of tough situations, but there is a profit that needs to be made.
So, that’s it! It starts with the ARV. Then, we back out the the repair costs, the fixed costs and the profit. And, that is the number that we give to sellers as a cash offer.
CASH OFFER = ARV – REPAIRS – FIXED COSTS – PROFIT
Sometimes that number works, and it’s great for everyone. You may need to sell your house fast and the cash offer works. Or, you don’t owe a lot on a mortgage and just want to be DONE with the house, and so a fast, cash offer is the best option.
There is another option that may be a better option for you, and we’ll talk about that in another video.
But, I wanted to just pull back the curtain here and let you know – when we make a cash offer, we’re not just trying to rip you off. We’re not trying to make the most profit possible. We are trying to get a deal done that works for everyone.
Almost every seller I talk to after I show them the comps and the ARV and say, “hey look, this is how much it will cost for repairs and we want to make this much in profit”, and to be fully honest, in Cincinnati and NKY, every investor wants to make at least $20k if they are going to put out their cash and take the risk. Otherwise, it’s usually not worth the risk to buy the property and hold it for 6 months or so until it’s sold.
So, there you go! This is a lot of honesty! And, I hope that helps you answer the question of how much a cash offer for your house will be.
We’re going to make another video of what is another option if that cash offer doesn’t work for you. And, a lot of our sellers choose to go that option as well.
Thanks for watching this video! I hope it helps answer the question for you of how we come up with the cash offer for buying your house.
If you need to sell your house fast in Cincinnati or Northern Kentucky, give us a call at (859) 412-1940. My name is Eric with WeBuyNKYHouses.com. I would love to talk to you and help you sell your house!