Maximum Allowable Offer (MAO): The Formula Investors Use
Maximum Allowable Offer is the highest price you can pay and still hit your profit target. Here is the MAO formula, an itemized version, and the three inputs that wreck it.
Maximum Allowable Offer, or MAO, is the highest price an investor can pay for a property and still hit their required profit. The standard formula is MAO = (ARV x 0.70) - Repair Costs, and wholesalers subtract their assignment fee on top of that.
What does MAO mean in real estate?
MAO is a ceiling, not a target. It is the price above which the deal stops working, calculated backward from the outcome you require rather than forward from what the seller is asking. That reversal is the whole discipline. Investors start with the exit and subtract every cost and the required profit, and whatever is left over is what they can pay. If the seller's number is above your MAO, there is no negotiation to have unless something in your inputs was wrong.
How do you calculate maximum allowable offer?
The quick version, used for screening:
MAO = (ARV x 0.70) - Repairs
The wholesaler version:
MAO = (ARV x 0.70) - Repairs - Assignment Fee
The full version, used once a property survives the screen:
MAO = ARV - Repairs - Holding Costs - Buying Costs - Selling Costs - Required Profit
The two produce different numbers, and the difference is informative. The 70 percent version bundles all costs and profit into a single 30 percent haircut. The full version itemizes them. When the full version gives you a higher MAO than the 70 percent version, it usually means your specific deal has lower costs than the rule assumes, for example an all cash purchase or a fast cosmetic turn.
| Component | What it covers | Typical share of ARV |
|---|---|---|
| Repairs | Materials, labor, permits, contingency | Deal specific |
| Buying costs | Title, escrow, inspections, lender points | 1% to 3% |
| Holding costs | Interest, taxes, insurance, utilities, HOA | 3% to 8% depending on term |
| Selling costs | Commissions, transfer tax, concessions, staging | 6% to 9% |
| Required profit | Your minimum acceptable return for the risk | 10% to 20% |
MAO example with illustrative numbers
A 4 bed, 2 bath, 1,700 square foot house. All figures are illustrative.
Quick screen
| Line | Amount |
|---|---|
| ARV | $340,000 |
| ARV x 0.70 | $238,000 |
| Repairs | $62,000 |
| MAO (screen) | $176,000 |
Full itemized version
| Line | Amount |
|---|---|
| ARV | $340,000 |
| Repairs | ($62,000) |
| Buying costs at 2% | ($6,800) |
| Holding costs, 6 months | ($12,500) |
| Selling costs at 7% | ($23,800) |
| Required profit, 15% of ARV | ($51,000) |
| MAO (itemized) | $183,900 |
Wholesaler version
If you are wholesaling this same property and want a $12,000 assignment fee, your contract price is the investor's MAO minus your fee: $176,000 minus $12,000, or $164,000. The investor still gets a deal at their number, and your fee comes out of the spread rather than out of their margin, which is why they take your calls again.
Why is the offer so much lower than the property's value?
This is the question every seller asks, and having a straight answer makes you a better negotiator. In the example above, the as-is value of the house is probably somewhere near $250,000. The MAO is $176,000. The $74,000 gap is not an insult, it is compensation for what the investor is providing: certainty of close, no financing contingency, no inspection repairs, no showings, a fast timeline, and the assumption of all construction and market risk. A seller who can wait ninety days, make repairs, and list on the open market will usually net more. A seller who cannot is buying speed and certainty with that spread. Say it that plainly and you close more deals than investors who dodge the question.
Adjusting MAO for your market and strategy
The 0.70 multiplier is a starting point calibrated for mid-priced flips. A rental purchase is constrained by cash flow and by what the refinance will support, not by resale margin. Model that with the rental property calculator or the BRRRR calculator.
The three ways MAO goes wrong
1. ARV is inflated. Because MAO multiplies ARV, an optimistic ARV raises your ceiling and lowers your exit at the same time. This is the dominant failure mode. Build ARV from three to five closed, adjusted sales of renovated homes, and check that the top comp was actually renovated rather than simply lucky. 2. Repairs are underscoped. Walking a property once, without a contractor, and calling it "$40 a square foot" is how a $62,000 budget becomes $88,000. Scope by line item and carry a contingency of 10 to 20 percent, more on pre-1970 stock. 3. Holding period is optimistic. A six month model that runs nine months adds interest, taxes, insurance, and utilities, and often lands you in a worse selling season.
Should you offer your MAO?
No. MAO is the number you will not exceed, not the number you lead with. Open below it so you have room, and know exactly where your walk-away point sits before the conversation starts. The value of calculating MAO is that it makes walking away an arithmetic decision instead of an emotional one. Write your MAO down before you negotiate. Investors who lose money rarely do it because they cannot calculate MAO. They do it because they moved it $15,000 during a phone call with a motivated seller.
Tools for running MAO
Establish the ARV with the free ARV calculator, size the work with the rehab cost estimator, then build the itemized version in the deal analyzer, which shows the offer ceiling alongside projected profit and returns. Closing cost assumptions can be checked with the closing costs calculator, and every free calculator is listed at free tools with no signup required. Because MAO lives or dies on ARV, Resideline keeps comps visible and adjustable rather than hidden behind a score, so you can see which sales produced the number and remove any that do not belong. Estimates are frozen when a property lists and graded against the real closing price on the public accuracy dashboard. Live valuations currently cover 31 US states.
Frequently Asked Questions
What does MAO stand for in real estate?
MAO stands for Maximum Allowable Offer, the highest price an investor can pay for a property and still hit their required profit. The common screening formula is ARV times 0.70, minus repair costs. It is a ceiling you will not exceed, not the number you open with.
How do wholesalers calculate MAO?
A wholesaler starts with the end buyer's maximum offer, then subtracts their own assignment fee. If an investor's MAO is $176,000 and the wholesaler wants a $12,000 fee, the contract price is $164,000. Taking the fee out of the spread rather than out of the buyer's margin is what keeps investors answering your calls.
Should you offer your maximum allowable offer?
No. MAO is your walk-away ceiling, so open below it and keep negotiating room. The real value of calculating MAO in advance is that it turns walking away into an arithmetic decision rather than an emotional one. Write the number down before the conversation with the seller starts.
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