The basic model

A direct buyer purchases a property for its own account, in as-is condition, and then either renovates and resells it, rents it, or holds it. Profit comes from the difference between the purchase price and what the property is worth after work, minus the cost of that work, the cost of money, and the risk of being wrong about either.

That means an offer is not arbitrary. It is a function of after-repair value, repair scope, holding costs, transaction costs on both ends, and a margin for risk. A buyer who cannot explain those five inputs for your specific house is not really underwriting it.

The five inputs behind any legitimate offer

  • After-repair value: what the property would sell for once fully repaired, based on recent comparable sales
  • Repair scope: the actual cost of getting it there, not a per-square-foot guess
  • Holding costs: taxes, insurance, utilities and financing during the work
  • Transaction costs: closing costs on purchase and on eventual resale, including commission
  • Risk margin: the buffer for hidden damage, market movement and schedule overruns

Wholesaling and assignments, explained plainly

Some companies do not buy the house. They put it under contract and then assign that contract to an actual buyer for a fee. This is legal in New York when done properly and disclosed, and it is a legitimate service in some situations. It becomes a problem when the seller is not told, when the assignment fee is large and hidden, or when the party marketing the property does not actually own it.

You are entitled to ask directly: are you buying this yourself, or assigning it? If assigning, what is your fee, and is my contract contingent on you finding someone? A straight answer to those three questions tells you almost everything.

Questions worth asking any cash buyer

  • Are you purchasing this for your own account, or assigning the contract?
  • What is your estimate of the after-repair value, and which comparable sales support it?
  • What repairs are you assuming, and at roughly what cost?
  • What contingencies are in your contract, and how long do they run?
  • Can my attorney review the agreement before I sign? (Any hesitation here is disqualifying.)
  • Will you put every deduction from my proceeds in writing before I commit?