When a flipper asks, "What can I pay?", they are not asking for your opinion of the kitchen backsplash. They are asking for maximum allowable offer (MAO) — the highest purchase price that still leaves room for rehab, holding costs, selling costs, and their required profit.
Agents who can run and explain MAO become useful on the first deal. Agents who only say "it looks like a good buy" get replaced by someone with a spreadsheet.
This article is a practical MAO primer for residential agents working with fix-and-flip clients. It is education, not underwriting advice for a specific property.
MAO in Plain English
MAO is a ceiling, not a target.
If the seller will not come down to MAO (or below), the disciplined answer is usually "pass" — not "stretch and hope." Your credibility with serious flippers depends on protecting that ceiling.
The Full MAO Formula Agents Should Know
A complete version looks like this:
MAO = ARV − selling costs − rehab − contingency − holding costs − financing costs − purchase closing costs − target profit
Working definition of each piece:
ARV (After-Repair Value)
Estimated resale value after renovations, based on sold comps of similar renovated homes. Prefer recent sales in a tight radius with similar beds, baths, size, and finish level. Active listings are not comps; they are aspirations.
Selling costs
Typically include agent commissions, seller concessions (if common in your market), transfer taxes, and closing fees on the exit. Many investors ballpark total selling costs as a percentage of ARV, then refine with local norms.
Rehab + contingency
Line-item renovation budget, plus a contingency buffer. Contingency often rises with scope and older homes. Agents should not invent contractor pricing — walk properties carefully and use rehab estimating practices that do not require you to be a GC.
Holding costs
Taxes, insurance (often vacant / builder's risk), utilities, HOA, lawn, security, and loan interest across the expected months to renovate and sell. Optimistic timelines quietly destroy margins.
Financing and purchase closing costs
Points, lender fees, draw fees, prepaid interest, title/escrow on the buy side, and other acquisition friction.
Target profit
The investor's required net — a dollar floor, a percent of ARV, or both. This is their number. Your job is to ask for it and underwrite to it, not to invent a heroic return to win the listing appointment.
Where the 70% Rule Fits (and Where It Breaks)
You will hear the 70% rule constantly:
Max offer ≈ (ARV × 0.70) − rehab
It is a screening shortcut, not a complete underwrite. It roughly reserves 30% of ARV for profit plus many soft costs — but markets, fee structures, hold times, and rehab risk vary.
Use the 70% rule to decide whether a lead deserves a full MAO. Then run the full stack before anyone writes an offer.
For more context on rule-of-thumb limits, see the 70% rule for agents.
A Worked Example (Illustrative Math Only)
Assume:
- ARV from renovated comps: $360,000
- Rehab (line items): $55,000
- Contingency (15% of rehab): $8,250
- Selling costs (~6.5% of ARV): $23,400
- Holding costs (6 months): $12,000
- Financing + buy-side closing: $9,500
- Target profit: $40,000
MAO = 360,000 − 23,400 − 55,000 − 8,250 − 12,000 − 9,500 − 40,000
MAO = $211,850
If the seller wants $245,000 as-is, this deal does not work at the client's profit target — unless ARV, rehab, timeline, or profit requirement changes with evidence.
Notice what an agent should not do: quietly raise ARV to $390,000 because that makes the offer feel possible. That is how relationships and flips both fail.
How Agents Should Present MAO to Flippers
Send a short memo, not a novel:
- Property snapshot — address, beds/baths, condition notes
- ARV range + comps used — list the sold comps and why they qualify
- Rehab sketch — categories and confidence level (photo-only vs. walked with GC)
- MAO and key assumptions — hold months, selling cost %, profit target
- Recommendation — offer, renegotiate, or pass
- Open risks — roof age unknown, possible unpermitted work, tenant issues, etc.
Serious flippers may adjust your inputs. That is fine. You are facilitating clear math, not pretending to be their only underwriter.
Common MAO Mistakes Agents Make
1. Using listing prices as ARV
List prices inflate ego and destroy margins. Sold renovated comps only.
2. One-number rehab guesses
"$40K should cover it" is not analysis. Break out kitchen, baths, systems, flooring, paint, exterior, permits, and dumpsters at minimum.
3. Ignoring the exit market
If renovated comps are sitting or cutting price, ARV is not a static trophy number.
4. Assuming a four-month flip in a six-to-nine-month reality
Every extra month adds holding cost. Ask the flipper what timeline they want you to model and what contingency timeline they want beside it.
5. Forgetting concessions and realistic commissions
Exit costs are not optional lines you drop to "make it work."
6. Confusing seller motivation with buyer math
A motivated seller can still be above MAO. Motivation helps negotiation; it does not rewrite arithmetic.
How MAO Connects to the Buy Box
MAO is deal-level math. The buy box is investor-level criteria. Use them together:
- Buy box decides whether you analyze the lead.
- MAO decides whether you recommend an offer.
If a property fails the buy box, skip the deep underwrite. If it passes the buy box but fails MAO, send a clear pass with the numbers — that is how you keep trust when killing a deal.
Agent Workflow You Can Reuse
- Confirm the investor's profit target and hold assumptions.
- Pull renovated sold comps; set ARV as a range with a conservative midpoint.
- Build or request a rehab sketch; mark confidence.
- Fill selling, holding, financing, and closing cost assumptions.
- Calculate MAO.
- Compare to list price / likely seller number.
- Recommend offer strategy or pass.
- Save the memo in your CRM against that investor.
FAQ
Is MAO the same as offer price?
No. MAO is the maximum. Offers often start lower to leave negotiation room, depending on competition and seller situation.
Do all flippers use the same MAO formula?
No. Some use percentage-of-ARV profit targets; some use dollar floors; some lean on lender overlays (for example, loan-to-ARV caps). Always ask how this client underwrites.
Should agents guarantee ARV or profit?
No. You provide analysis and local comps support. Outcomes depend on rehab execution, market conditions, and pricing — factors you do not fully control. Avoid promising returns in advertising or conversation.
What if my flipper wants to ignore MAO "just this once"?
Document the assumptions they are overriding and the risk. Your job includes clarity. Whether they proceed is their capital decision.
How does financing change MAO?
Hard-money points, higher rates, and longer holds reduce MAO. Cash buyers with faster exits can sometimes support a higher purchase price for the same profit target. See hard money loans explained for agents.
Soft next step
If you want help installing deal-analysis habits, buy-box systems, and investor positioning in your market, Flip Engineers coaches agents who want to become the default call for flippers and developers. Book a call.