How Danny Buys Houses Values Your House
Our Transparent Cash Home Buyer Valuation Methodology
Understanding exactly how we determine our cash offers for your San Antonio property
Introduction to Cash Home Buyer Pricing
Cash home buyers determine their offers through specific formulas and methodologies that typically result in offers below market value but provide speed, convenience, and certainty in exchange. This document explains exactly how Danny Buys Houses determines our offers so you can understand the pricing process transparently.
Core Valuation Formula: The ARV Method
The foundation of most cash home buyer offers is the After-Repair Value (ARV) calculation. Danny Buys Houses follows this process:
1. Determine the After-Repair Value (ARV)
ARV is the estimated market value of your property after all necessary repairs and renovations have been completed. We determine this by:
- Analyzing comparable properties: Recent sales of similar properties in your neighborhood (typically within the last 3-6 months and within 1 mile). We do not typically consider the prices of homes currently for sale as most homes sell for less than list price.
- Adjusting for specific features: Square footage, number of bedrooms/bathrooms, lot size, amenities like pools, etc.
- Considering market trends: Whether your local market is trending up or down
- Considering average days on market in the area: This affects our holding costs
Example:
A San Antonio homeowner wanting to sell a 3-bedroom, 2-bathroom house in San Antonio. We will begin our research with recent sales of similar homes in the neighborhood. If comparable properties have sold for between $200,000-$220,000, they might determine an ARV of $220,000.
2. Calculate Repair and Renovation Costs
Next, we estimate the cost of necessary repairs and upgrades to bring the property to market standards:
- Cosmetic repairs: Painting, flooring, fixtures, landscaping
- Structural issues: Foundation (very common in San Antonio, TX), roof, electrical, plumbing
- Updates: Kitchen, bathroom renovations, etc.
Example:
Danny Buys Houses inspects a 2,000 square foot house and estimates:
- $8,000 for new flooring throughout
- $6,000 for interior/exterior painting
- $15,000 for kitchen updates
- $8,000 for bathroom renovations
- $5,000 for miscellaneous repairs
Total estimated repair cost: $42,000
3. Apply the Discount Formula (70% Rule)
Most cash buyers use some version of what's known as the “70% Rule“ to determine their maximum offer. Danny Buys Houses normally uses:
Formula: (ARV × 70%) - Repair Costs = Maximum Offer
This 70% accounts for:
- Transaction costs for purchase and resale (closing costs, holding costs)
- Risk factors
- Profit margin
Example:
Using our previous figures:
- ARV: $210,000
- Repair costs: $42,000
Maximum offer calculation: ($210,000 × 70%) - $42,000 = $147,000 - $42,000 = $105,000
Factors That Can Affect Your Cash Offer
Market Conditions
- Seller's market: In competitive markets with limited inventory, Danny Buys Houses might offer closer to 75-80% of ARV
- Buyer's market: In markets with excess inventory, offers might be closer to 65-70% of ARV
Example:
If San Antonio is experiencing a strong seller's market with limited inventory, we might adjust our formula to 75% of ARV instead of 70%:
Revised calculation: ($210,000 × 75%) - $42,000 = $157,500 - $42,000 = $115,500
Property Location
Properties in highly desirable neighborhoods or rapidly appreciating areas may receive higher offers.
Example:
If the house is in a particularly desirable San Antonio neighborhood with good schools and rapidly appreciating values, we might add a location premium of 3-5%:
With 5% location premium: $115,500 × 1.05 = $121,275
Property Condition
Homes requiring extensive repairs will receive lower offers due to higher renovation costs and risks.
Example:
If a structural inspection reveals foundation issues requiring an additional $20,000 in repairs:
Updated repair costs: $42,000 + $20,000 = $62,000
Revised offer: ($210,000 × 70%) - $62,000 = $147,000 - $62,000 = $85,000
Different Business Models Affect Offers
Danny Buys Houses uses different strategies for different homes depending on price range and location
House Flip
We will renovate and resell a property quickly for profit if the house is in an area where there are a majority of homeowners. In this case, we typically follow the ARV formula explained earlier closely.
Example:
We might offer exactly as calculated by the 70% rule:
$105,000 based on the original calculations
Buy-and-Hold (Rental)
When we intend to keep the property as a rental investment. In this situation, it is usually because the house is in an area where homes are not selling and the majority of homes are rented to tenants. We may base our offer on rental income potential.
Formula: (Monthly Rent × 12) ÷ Desired Cap Rate - Repair Costs
Example:
If the property could rent for $1,800/month and we want an 8% cap rate:
- Annual rental income: $1,200 × 12 = $14,400
- Repairs needed to rent: $15,000
- Property value based on rental income: $14,400 ÷ 0.08 = $180,000
- After repairs and desired profit: $180,000 × 70% = $126,000
Final offer after repair costs: $126,000 - $15,000 = $111,000
Wholesale
Sometimes we intend to contract the property and then assign the contract to another investor for a fee. We sometimes do this when the house is very large and/or requires extremely extensive repairs.
Example:
We might offer 70% of ARV minus repair costs (note the higher repair cost for this example), less our wholesale fee (paid by the final end buyer):
($210,000 × 70%) - $62,000 - $5,000 fee = $147,000 - $62,000 - $5,000 = $80,000
Understanding Your Options
Cash Offer vs. Traditional Sale Tradeoffs
Danny Buys Houses offers:
- Speed: Instant buyer versus spending over 2 months finding buyer. Close in as little as 7-14 days vs. 30-60 days with traditional financing
- Convenience: No repairs, staging, or showings required
- Certainty: No financing fall-through risks
- Reduced fees: No agent commissions (saving 5-6%)
However, you'll typically receive:
- Lower price: Usually 70-85% of market value minus repair costs
Example:
Selling the same property on the traditional market:
- Market value (after you make repairs): $210,000
- Minus your repair costs (noting it typically costs homeowners more for renovations): -$62,000
- Minus agent commissions (6%): -$12,600
- Minus holding costs, closing costs, buyer assistance.: -$13,400
Net proceeds: approximately $122,000
Versus cash offer:
- Cash offer: $105,000
- No repair costs: $0
- No commissions: $0
- Minimal closing costs: -$2,000
Net proceeds: approximately $103,000
In this example, the difference is about $19,000, but you save time (likely months), avoid the hassle of repairs (which could end up costing more), and eliminate the uncertainty of traditional sales.
How to Evaluate a Cash Offer
Our recommendations for choosing the best offer for your situation
- Get multiple offers: Different cash buyers have different formulas and business models. Sometimes Danny Buys Houses does not offer the most.
- Ask for transparency: Request a breakdown of how they calculated their offer
- Verify repair estimates: Get independent repair quotes if possible
- Consider your priorities: Is speed and convenience worth the discount?
Conclusion
Danny Buys Houses follows specific valuation methodologies that prioritize quick, hassle-free transactions over maximum sale price. By understanding these formulas, you can better evaluate whether a cash offer aligns with your goals and circumstances.
The key is to understand that the discount isn't arbitrary – it represents our costs, risks, and profit margin required to make the transaction viable as a business model. Armed with this knowledge, you can make an informed decision about whether to accept a cash offer or pursue a traditional sale.