As Don said below, it is a legitimate offer, but really hurts your wallet unless you just feel you must sell very quickly.
Here's how it works: The investor starts from the after-repair value (the fixed up value, if fix-up is needed) of a property. That value is then reduced to about 65%-70%. So, just to use round numbers, if the fixed-up value is $100,000, it's dropped down to $65,000-$70,000. Then repair expenses are subtracted. Let's say the home needs almost no repairs--maybe just paint and carpet--about $5,000. Subtract that, and you come up with $60,000-$65,000. That's what the investor calls the "MAO" or "maximum allowable offer." That's the most the investor will pay for the home. He may offer less.
To take your specific example, the investor would not base his calculations off an appraised value, unless the appraisal were very recent and done for the right reason. (Example: appraisals for refinancings are no good; they're not done for the right reason.) Instead, the investor would have a Realtor run comps, and base the ARV on the comps. And if you meant "assessment" rather than appraisal, an investor would never, never base an offer on a tax assessment. Never.
I doubt the investor said that 80% of the appraisal "is the best price you can get in that area." It's easy enough for you to go to a Realtor and ask how much the property might sell for. In other words, what are the comps? An investor might say that 80% of some figure is the most he could offer. I'd be glad to tell someone that, as an investor, the most I could pay would be 70% of ARV. I'd also be glad to tell the seller that if he didn't want or have to sell immediately, I'd be glad to list his property and sell it for close to 100% of ARV.
It really comes down to how quickly you want to sell, and what condition the home is in. As an investor, I'll buy the home in as-is condition. (I'll do that because I'll subtract the necessary fix-ups from my base offer.) Some sellers just want to sell their homes. They don't want to put in a lot of time, effort, and money fixing it up.
To address a few points below: One comment asks: "Did they provide a Comparative Market Analysis?" If they're really claiming that the best price you could get (from anyone) would be 80% of an appraisal, then it might make sense. But, again, most investors wouldn't base an offer on an appraisal, regardless of who did it. And most investors are honest enough to admit that you can get more by listing with a Realtor. I really suspect the investor was saying that 80% of some figure was the most they could offer. And there'd be no need for a CMA in that case. When YOU bought your home, did YOU present the seller with a CMA to justify your offer? I doubt it. You made an offer that worked for you and figured, correctly, that if the seller liked the number, he'd accept. If he didn't like it, he'd reject it or counter.
Look: You can get more by listing with a Realtor. Let's say your home is worth $120,000. If you list with a Realtor, after commissions, other expenses, and stuff, you might net $110,000. Depending on how healthy the real estate market is where you are, a properly priced home might take 45-100 days or so to sell. If you sell to a "I Buy Houses" company, you're likely to net about $77,000, depending on your home's condition. But you'll be able to sell in a week or two in as-is condition, not 2-3 months.
It's not a swindle. It's just a different business model providing a different mix of services to the seller.
Hope that helps.
Investors like this company are looking to flip the home so they have to buy it for $.60 on the dollar or so depending on how much work is needed to bring the home up to par.
"WAS" is the operative word regarding any appraisal on any property in this market. Appraisers use sold data. What about actives and pendings on your market right now, would they also have an effect on your price?
Before you decide, why not consult a couple real estate agents to get a real time home value (CMA) at no cost to you. Then armed with this information you can make an intelligent decision. If your home really is worth 112K the cost of a listing agent usually would be $6720 (6%). That puts $15,680 in YOUR pocket instead of going to ibuyhousesfromgulliblesellers.com. Imagine what could you buy with this extra money.
In truth a home will sell for full market value when placed on the market, priced within the range of value and marketed correctly. In most areas homes will sell closest to asking price if they sell within the first 30 days. In most markets only about 20-25% of homes are priced within the range of value, the remaining 75-80% will take more than 30 days to sell and will sell at significantly below asking price.
So, if you need to sell, you should be able to sell at market price within 30 days. That would seem plenty fast for most people.
As previously noted, an investor makes sure that they make money on the buy side. Most investors will be a maximum of 80% of the market value. That way if things do not go as planned and they simply put your home back on the market , they will make at least 10-14% for their time and trouble.
Good luck. If you need to sell, interview at least two Realtors and compare their analyses and proposals.
Check with a local REALTOR as to the actual sales price that you should expect before doing business with a company like this. If you need a referral, I have some friends in the Denton area that could help you out.