How this calculator works
An offer is not a guess at what the house is worth; it is a price that makes the deal work for you. Start with the fair market value the home should reach once any work is finished, then subtract what the work will cost, then subtract the margin or discount you need. A homebuyer usually wants a discount off market value to cover the risk that the value estimate is optimistic and to leave room for negotiation. An investor wants a margin that pays for holding costs, selling costs and the risk of a project going wrong. If you already have a number in mind, the third mode reverses the calculation and tells you the discount it implies. The scenario table shows the offer at every discount from 0% to 12%, so you can see how sensitive the price is to the target. The fair market value must be the value after the work is complete, not the current condition, otherwise the renovation cost is subtracted twice. Two warnings. First, a discount that is larger than the market allows will simply lose the house; the scenario table shows when the offer becomes unrealistic. Second, the renovation estimate should include a contingency, typically 10% to 20% for an older home, because surprises are common once walls are opened.
Formula
Homebuyer offer = market value x (1 - desired discount) - renovation. Investor offer = market value x (1 - desired margin) - renovation. Implied discount = 1 - (offer + renovation) / market value. Equity after renovation = market value - offer - renovation. Total cost = offer + renovation.
Worked example
A house worth $550,000 after renovation needs $25,000 of work. A buyer wanting a 5% discount offers $550,000 x 0.95 - $25,000 = $497,500, which is $52,500 below market value and leaves $27,500 of equity over the total cost of $522,500. An investor wanting a 12% margin offers $550,000 x 0.88 - $25,000 = $459,000. If you offer $500,000, the implied discount is 1 - $525,000 / $550,000 = 4.55%.
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Frequently asked questions
Should the offer include the renovation cost?
Yes, if the market value is the value after the work. Otherwise you would pay market price and then spend the renovation money on top, which removes the discount you thought you had.
What discount should a homebuyer ask for?
There is no universal number. In a balanced market, 3% to 7% is a common starting range, but it depends on how long the home has been listed and how much competition exists. The calculator shows the range so you can choose.
What margin does a house flipper need?
Enough to cover buying and selling costs, holding costs, financing and a profit for the risk. A common target is 10% to 20% of the after-repair value, but the right figure depends on the project and the market.
Why does the offer fall when the renovation rises?
The total cost of the finished home is the offer plus the work. If the work costs more, the offer must be lower to keep the total and the resulting margin the same.
Can the offer be negative?
Mathematically yes when the costs exceed the value, but that is a sign the deal does not work at any price. The calculator reports an error rather than a meaningless negative offer.