If you’ve ever called a “we buy houses” company, you’ve probably wondered where the number comes from. Is it a formula? A guess? Something they pull out of the air to see if you’ll bite?
We get asked this all the time, so here’s the honest answer for how we do it at Pilgrim Hill Holdings. Every buyer is a little different, but the basic math is the same across the industry, and once you see it you’ll be able to tell a fair offer from a bad one.
It Starts With What the House Would Be Worth Fixed Up
The first thing we figure out is what your house would sell for on the open market if it were in good, updated condition. Investors call this the after-repair value. We look at recent sales of similar houses in your town, ideally the same neighborhood, same style, same rough size and lot, that sold in the last few months.
This is the same thing a real estate agent does when they price a listing, except we’re pricing the finished product, not the house as it sits today. On Cape Cod that number can swing a lot from one village to the next, so we’re careful to use comps that are actually comparable and not just close by.
Then We Subtract What It Will Cost to Get It There
Next we estimate the repairs. This is where a walkthrough matters, because a house that “just needs cosmetics” can hide a failed Title 5, knob-and-tube wiring, a roof at the end of its life, or water in the basement. We’ve been inside hundreds of houses across Massachusetts, so we usually know within a few minutes what we’re looking at.
The repair number covers everything from the obvious, like a kitchen and bathrooms, to the things a buyer never sees, like a septic replacement or a new electrical panel. We build in a cushion because something always comes up once the walls are open.
Then the Costs of Owning and Reselling
A lot of sellers don’t think about this part, but it’s real money. While we own the house we’re paying property taxes, insurance, utilities, and usually financing costs. When we sell it, we pay a real estate commission, transfer taxes, and closing costs, just like any seller does. Depending on the project, a house might take four to eight months from purchase to resale, and every one of those months costs something.
And Then a Margin, Because This Is a Business
We’re not going to pretend otherwise. We have to make a profit on the project or there’s no reason to do it. The margin covers our risk, because the market can move, repairs can run over, and a house can sit longer than expected. It also has to cover the deals that don’t work out.
The size of that margin depends on the deal. A house that needs a full gut in a shifting market carries more risk than a solid house that needs a refresh, so the numbers reflect that.
Put It Together and That’s the Offer
After-repair value, minus repairs, minus holding and selling costs, minus margin. What’s left is what we can pay. It’s not a trick and it’s not personal. It’s arithmetic, and any legitimate buyer is doing some version of it.
The important thing is that we’ll walk you through it. If you want to see the comps we used or how we got to the repair number, just ask. We’d rather you understand the offer and turn it down than accept a number you don’t trust.
Why the Offer Is Lower Than a Listing Price, and When That’s Still the Better Deal
A cash offer will almost always be less than what you’d get listing a house that’s in good shape. That’s not a secret. If your house is updated, in a strong location, and you have the time and money to go through a traditional sale, listing it is often the right call, and we’ll tell you that.
Where a cash offer wins is when the house needs work you can’t or don’t want to do, when you need certainty on the closing date, when there are tenants or probate or a difficult family situation involved, or when you’ve done the math on repairs, months of carrying costs, commissions, and inspection concessions and realized the “higher” listing number isn’t actually higher once everything comes out of it.
What We Won’t Do
We won’t make you an offer we don’t intend to honor. Some buyers throw out a high number to get a house under contract, then “renegotiate” after inspection once you’ve stopped talking to anyone else. We don’t do that. When we agree on a price, that’s the price, unless something turns up that neither of us could have known about, and we’ll show you what it is.
We also won’t pressure you. Get other offers. Talk to an agent. Take your time. If our number is the right fit for your situation, you’ll know.
Want to See What Your Number Is?
Fill out the form on this site or call or text George at 508-322-8787. Tell us about the house, we’ll take a quick look, and we’ll give you a written offer with the reasoning behind it. No obligation, no games.
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