You got a mailer, a postcard, or a phone call: "We'll pay cash for your home as-is." The number they quote feels low, but is it? Understanding how investors calculate offers is the single best way to evaluate any cash offer you receive — and decide whether taking it makes sense for your situation.
The Foundation: After Repair Value (ARV)
Every cash buyer calculation starts with ARV — the estimated value of your home after any needed repairs and renovations are complete. This is what a buyer would pay for a fully updated version of your property on the open market. Investors typically estimate ARV by looking at recent comparable sales in your area.
The 70% Rule
Most NJ real estate investors use a formula called the 70% rule:
Maximum Offer = (ARV × 70%) − Repair Costs
Example:
- Your home's ARV (fully renovated value): $500,000
- Estimated repairs: $60,000
- Maximum offer: ($500,000 × 70%) − $60,000 = $350,000 − $60,000 = $290,000
The 30% they keep ($150,000 in this example) covers: holding costs during renovation (typically 3–6 months of carrying costs), their profit margin (typically 10–20% of ARV), selling costs when they resell (agent commission ~5.5% + closing), and risk buffer for cost overruns.
Why Offers Vary So Much
Not all investors use exactly 70%. Some use 65% (more cautious), some 75% (competitive market). The repair estimate is also investor-specific — their contractor may estimate differently than yours. This is why getting 2–3 offers is important: you're not just comparing prices, you're comparing assumptions.
What "Fair" Actually Looks Like
A fair cash offer in NJ typically lands at 65–75% of ARV minus repairs. If you're getting an offer at 55–60% or lower, the investor is building in extra margin — often a sign of a wholesaler who will assign your contract to another investor for a fee. If the offer is above 80%, double-check their repair estimates — they may be low-balling repairs to make the offer look better.
The Convenience Cost
The honest way to think about a cash offer: what is the "convenience cost" — the difference between what you'd net from a traditional listing (with time and effort) versus what you'd net from a cash sale (today, as-is)?
In NJ, this gap is typically $50,000–$150,000 on a median-priced home. Whether that's worth it depends entirely on your situation. For some sellers — an estate, a foreclosure deadline, an out-of-state owner, a home with major structural issues — it absolutely is. For others, it isn't. Use our Cash Offer Calculator to see your specific numbers.
Red Flags to Watch For
- Pressure to sign quickly ("this offer expires in 24 hours")
- Refusal to provide proof of funds
- Very long inspection periods (sign of a wholesaler seeking to assign)
- No earnest money deposit
- Verbal-only offers — get everything in writing
NJClearPath does not buy or list homes. This article is for educational purposes only. Always consult a real estate attorney before signing any contract.