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How to calculate maximum allowable offer (MAO): the formula, worked examples, and the seller check
Updated · by the LowBaller team
Maximum allowable offer (MAO) is the most you can pay for a property and still make your target profit after repairs and costs. The standard formula is MAO = (ARV x factor) minus repairs minus your fee, where the factor is usually 0.70 for a flip and the fee is your assignment fee if you are wholesaling.
Every serious investor runs an MAO before making an offer, because it turns a feeling into a ceiling. The hard part is choosing the factor and checking the number against what the seller owes. This guide covers both, with five deals worked out to the dollar and a table that shows which seller situations can actually close at your number.
Definition
Maximum allowable offer (MAO): The highest price an investor can pay for a property and still hit their profit target, usually calculated as after repair value times a factor such as 0.70, minus repair costs, minus any wholesale fee.
What is the MAO formula?
The formula is MAO = ARV x factor - repairs - fee. Each input has a job.
- ARV (after repair value): what the house sells for after the work, from renovated sold comps. See how to calculate ARV.
- Factor: the share of ARV a buyer can pay before costs and profit. 0.70 is the classic number from the 70% rule.
- Repairs: the full rehab budget with a 10 to 15 percent contingency.
- Fee: your assignment fee if you wholesale. Leave it out if you are buying to flip yourself.
Wholesalers: the buyer's MAO is not yours
Your cash buyer runs the same formula without your fee. Your contract price has to sit below their number by at least the size of your fee, or the assignment will not sell.
MAO examples: five deals worked out
Here is the formula across five common deal types. The factor changes with risk: heavier rehabs and cheaper houses get a lower factor, light work and expensive markets a higher one. The fee scales roughly with the deal.
| Deal | Factor | Fee | MAO |
|---|---|---|---|
| Starter flip: $180,000 ARV, $35,000 repairs | 0.65 | $8,000 | $117,000 - $35,000 - $8,000 = $74,000 |
| Mid-market: $300,000 ARV, $45,000 repairs | 0.70 | $10,000 | $210,000 - $45,000 - $10,000 = $155,000 |
| Light cosmetic: $420,000 ARV, $20,000 repairs | 0.75 | $12,000 | $315,000 - $20,000 - $12,000 = $283,000 |
| High-cost metro: $750,000 ARV, $60,000 repairs | 0.75 | $15,000 | $562,500 - $60,000 - $15,000 = $487,500 |
| Heavy rehab: $260,000 ARV, $90,000 repairs | 0.65 | $10,000 | $169,000 - $90,000 - $10,000 = $69,000 |
How to choose your factor
The factor is where judgment enters. It should reflect how much can go wrong and how long the money is tied up. A five-point change in the factor moves the MAO by 5 percent of ARV, which is $15,000 on a $300,000 house.
Pick the factor before you talk to the seller, write it down, and do not change it mid-call. Investors who adjust the factor to make a deal work are paying for the deal they want, not the one in front of them.
MAO on a $300,000 ARV with $45,000 repairs and a $10,000 fee, by factor
| Factor | When investors use it | Why |
|---|---|---|
| 0.60 to 0.65 | Low-price houses, heavy rehabs, slow markets | Fixed costs eat a larger share of a small margin, and long rehabs add risk |
| 0.70 | Standard full renovation in an average market | The classic balance of costs, risk and profit |
| 0.75 | Light cosmetic work, fast-selling areas | Short hold, small repair risk |
| 0.75 to 0.80 | High-price metros with strong resale demand | The margin in dollars is large, so buyers compete it down |
MAO vs the seller's equity: can the deal actually close?
MAO answers what you can pay. The seller's payoff answers what they can accept. A deal exists only when your MAO is at or above the payoff floor: the mortgage balance, plus any liens and back taxes, plus the seller's own closing costs.
The table uses the $155,000 mid-market MAO and assumes seller closing costs of about 4 percent of the price, or $6,200. Change the debt and the same MAO goes from an easy yes to impossible. Unlocking a seller on LowBaller pulls the county record of loans, taxes and any amount in default, so you can run this check on the recorded debt instead of a guess.
| Seller situation | Payoff floor | Can it close at $155,000? | Seller walks away with |
|---|---|---|---|
| Owns free and clear | $6,200 | Yes | $148,800 |
| $90,000 mortgage | $96,200 | Yes | $58,800 |
| $140,000 mortgage | $146,200 | Yes, barely | $8,800 |
| $140,000 mortgage + $12,000 tax lien | $158,200 | No, $3,200 short | Nothing; would need to bring cash |
| $185,000 mortgage | $191,200 | No, $36,200 short | Short sale only |
Small gap? Cut your fee, not your repair budget
When the payoff is a few thousand dollars over your MAO, shrinking your assignment fee keeps the buyer's math intact. Padding the deal by trimming the repair estimate just moves the loss to your buyer.
How to calculate MAO step by step
- 1
Set the ARV
Use three to five renovated sold comps within about a mile and adjust each to the subject property. Use the low end of the range when comps disagree.
- 2
Price the repairs
Walk the property, list the work room by room, and add a 10 to 15 percent contingency for what you cannot see.
- 3
Choose the factor
Start at 0.70. Go lower for cheap, slow or heavy-rehab deals. Go higher for light work in fast, expensive markets.
- 4
Subtract repairs and your fee
ARV x factor, minus repairs, minus your assignment fee if you are wholesaling. That is your MAO.
- 5
Check the payoff floor
Add the recorded mortgages, liens and back taxes, plus about 3 to 5 percent for the seller's closing costs. If that total is above your MAO, the deal cannot close at your price.
- 6
Set your opening offer
Open meaningfully below the MAO, so you can move up during negotiation and still finish at or under your ceiling.
What to offer relative to your MAO
Your first number should leave room. On the $155,000 example, an opening offer around $135,000 to $140,000 leaves $15,000 to $20,000 to give back in exchange for things you want: a faster close, the seller handling a cleanout, or an as-is sale with no repair credits.
How far below to open depends on the situation. LowBaller's model suggests a start bid and a likely close for every property, based on the owner's distress and equity. On hard distress such as a scheduled auction, the model targets start bids around 40 to 50 percent under estimated value with likely closes around 35 to 45 percent under. On softer situations it targets 15 to 30 percent under. Compare the model's likely close with your MAO: if the likely close is above your MAO, the deal is probably not there.
You can run any address through the free lowball offer calculator to see both numbers, and read what to offer on a distressed property for the full pricing logic.
Common MAO mistakes
- Using an ARV from unrenovated or listed (not sold) comps, which inflates every number below it.
- Leaving out the contingency. Hidden repairs are the most common reason flips lose money.
- Forgetting holding costs on slow deals. Each month of taxes, insurance, utilities and interest comes out of the margin.
- Treating the MAO as the offer. Starting at your ceiling leaves no room to negotiate.
- Ignoring the seller's payoff. An MAO below the mortgage is not a lowball, it is a contract that cannot close.
- Changing the factor during the call to save a deal you like. Set it before you dial.
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 reach their profit target. It is usually calculated as the after repair value times a factor such as 0.70, minus repair costs, minus any wholesale fee. It is a ceiling, not an opening offer.
What is a good MAO formula for wholesaling?
Use MAO = ARV x 0.70 - repairs - assignment fee, and adjust the factor for the deal. On a $300,000 ARV with $45,000 of repairs and a $10,000 fee, the MAO is $155,000. Your end buyer runs the same math without your fee, so your contract must leave room for it.
Should my first offer be my MAO?
No. Your MAO is the most you can pay, so opening there leaves no room to negotiate. Open meaningfully below it, for example $135,000 to $140,000 on a $155,000 MAO, and trade the difference for things you value, such as a faster closing or an as-is sale.
Does MAO include closing costs?
Yes, through the factor. The 30 percent of ARV left by a 0.70 factor is meant to cover buying and selling closing costs, commissions, holding costs and financing, plus profit. The seller's own closing costs are separate and belong in the payoff check, not in your MAO.
What if the seller owes more than my MAO?
Then the deal cannot close at your price, because the mortgage must be paid at closing. If the gap is small, you can shrink your fee. If it is large, the only paths are a short sale approved by the lender or creative terms such as seller financing. Otherwise, move to the next lead.
Put this to work in your market.
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