How to Make an Offer on a Distressed Property: A Step-by-Step Guide

Getting a distressed seller on the phone is the hard part. Making the offer shouldn't be. But many investors — even experienced ones — make this more complicated than it needs to be, or worse, make it feel awkward and transactional to the seller. Here's the complete framework: the math, the conversation, and what to do when they say no.

Step 1: Understand the 70% Rule

The 70% rule is the foundational formula for distressed property investing. It says: your maximum purchase price should be no more than 70% of the after-repair value (ARV), minus your estimated repair costs.

The 30% buffer isn't arbitrary. It covers three things: your rehab cost overrun cushion (projects almost always run over), your holding costs during renovation (typically 4–7 months of carrying costs in Arizona), and your profit margin — the reason you're doing this in the first place.

For wholesalers, the formula adjusts slightly. If you're assigning the contract to a flipper, your buyer needs that 30% buffer to work with. So your purchase price needs to be even further below MAO — typically you build in your assignment fee on top:

Step 2: Estimate the ARV

ARV — After Repair Value — is what the property will be worth after a full renovation, sold to a retail buyer. This is the most important number in your formula, because errors here compound through everything else.

The Quick Comp Method

Pull 3–5 comparable sales (comps) that are: within 0.5 miles, similar square footage (within 20%), similar bedroom/bath count, sold within the last 90 days, and in fully renovated or good condition. Renovated comps matter most — don't compare against other distressed or "as-is" sales, because you're trying to estimate what a fully finished home will sell for.

In Maricopa County, you can pull comps from the MLS (if you or your agent has access), Zillow's recent sales, Redfin, or directly from the Maricopa County Assessor's sold records. For a quick ARV estimate before a site visit, two minutes on Zillow is enough to set your target range.

Adjustments That Matter in Arizona

Maricopa County has some ARV drivers that investors from other markets sometimes miss. Pool presence adds meaningful value — typically $15,000–$30,000 in Phoenix-area homes below $450K. Covered parking matters. RV gates matter in certain submarkets (Surprise, Peoria, Queen Creek). Updated kitchens and primary baths move the needle significantly. Conversely, backing a busy road, proximity to a freeway, or location in a higher-crime zip can reduce your effective ARV by 5–10% compared to seemingly similar comps a mile away.

When in doubt, be conservative on ARV and conservative on rehab cost. The deals that hurt investors are always the ones where both numbers were too optimistic.

Step 3: Estimate Repair Costs

You don't need a contractor bid to make an initial offer — you need a reliable ballpark. The goal at this stage is a number accurate enough to determine whether the deal is worth pursuing, not a construction budget.

The Quick Rehab Estimate Method

Walk the property (or view photos) and categorize the work into three buckets:

• Cosmetic only ($15–$30 per sq ft): Paint, flooring, fixtures, landscape cleanup. Property is structurally sound, mechanicals work, kitchen and baths need updating but are functional.
• Moderate rehab ($35–$55 per sq ft): Kitchen gut, primary bath remodel, new HVAC, roof work, exterior paint, new windows. Structurally sound but needs significant work throughout.
• Full rehab ($60–$90+ per sq ft): Structural issues, foundation work, complete gut, plumbing or electrical re-runs, permitted additions. Significant unknowns.

In Arizona specifically, always budget for HVAC replacement on properties over 15 years old if the unit hasn't been recently replaced — $6,000–$12,000 per unit. Roof condition matters enormously; a full re-roof on a 1,800 sq ft ranch runs $8,000–$14,000. These two items alone can make or break a deal, and sellers often don't disclose them.

Step 4: Calculate Your MAO

With ARV and repairs in hand, the math is simple. Let's walk through a real example:

Your starting offer might be slightly below MAO to leave negotiating room. If you open at $177,500 and they counter at $195,000, you know your absolute ceiling before the conversation starts.

Step 5: Presenting the Offer to a Distressed Seller

The math gets you to a number. The conversation gets you to a yes. Most deals fall apart not because the number was wrong, but because the presentation was clumsy.

Lead with Empathy, Not the Offer

Before you say a number, make sure you understand their situation. Ask: "Before I get into what we can do, help me understand — what does your ideal outcome look like?" Let them tell you what they need. Someone who needs to close in 10 days for a reason has different motivations than someone who'd like to stay in the house for 60 days after closing. The offer that solves their actual problem — not just the price problem — closes faster.

Frame the Offer Around Their Needs

Don't lead with "I can offer you X." Lead with: "Based on what the property needs and what I've seen sell recently nearby, I can do [number], all cash, close in [timeline], no repairs, no agents, no fees on your side. You walk away with [number] in your pocket, no more property to deal with."

The specifics matter. "All cash" is meaningful to someone who's been burned by financed deals falling through. "Close in 14 days" is meaningful to someone in foreclosure. "No repairs" is meaningful to someone who doesn't have $8,000 to fix the roof. Tie the terms to what they just told you they need.

Don't Apologize for Your Number

New investors often undermine their own offers by over-explaining or apologizing: "I know this is lower than you were hoping for, but..." Don't do this. Present the number with confidence. "This is what works based on what the home needs and what I can make work on my end. I want to be straightforward with you." Confidence signals competence — sellers trust investors who know their numbers.

What to Do When They Say No

Most first conversations don't close. That's fine. The follow-up is where deals happen. When a seller says no (or "I need to think about it"), ask one question: "Is it the price, the timeline, or do you just need some time to decide?" Their answer tells you exactly what to address next.

Then follow up. One call or text per week is not annoying — it's persistent. A handwritten note two weeks after the call. An email with a recent market comp when it sells. Many deals that took 3 months to close started with a conversation where the seller said no three times first. The investors who win in distressed property markets are the ones who stay in the game long enough to be the option the seller calls when they're finally ready.

For context on the types of distressed leads where these conversations happen — foreclosure, probate, bankruptcy, divorce — see our guide to finding motivated sellers in Phoenix. And if you're deciding whether to flip or wholesale the deal once you lock it up, the wholesaling vs fix and flip comparison lays out the full decision framework.