MAO vs. assignment fee: what’s the difference?

What is MAO in real estate wholesaling?

MAO stands for maximum allowable offer. The maximum allowable offer (MAO) is the most you can offer the seller and still leave room for the buyer's profit and your fee. It's a ceiling, not an opening offer: go above it and the deal no longer works for someone.

New to assignment fees? Start with the complete guide to wholesale assignment fees.

If you're new to MAO wholesaling, think of MAO as your walk-away number with the seller. Before you ever talk price with a homeowner, you should know the highest price at which the deal still works: the buyer still makes a fair profit, and there's still room for your fee. Go above it and you've signed a contract nobody wants to take over — or one where your fee has to shrink to almost nothing.

What is the MAO formula for wholesaling?

The MAO formula most wholesalers learn is: MAO = (ARV × 70%) − repairs − assignment fee. On a house worth $300,000 fixed up that needs $30,000 of work, with a $15,000 fee: $210,000 − $30,000 − $15,000 = $165,000.

The version that works on every deal is simpler: MAO = what buyers will pay − the fee you need. The 70% part is just one guess at what buyers will pay. The better that guess, the better your MAO.

Written out in full, the maximum allowable offer formula most courses teach is:

MAO = (ARV × 70%) − repairs − your assignment fee

Each piece is doing a job. ARV × 70% is a rough guess at what a flipper can pay before repairs. Subtracting repairs gives the flipper's price. Subtracting your fee gives the most you can pay the seller. The weak spot is the 70% — it's the same guess on every deal, in every market. Replace it with what buyers near you actually pay, and the formula becomes: MAO = what buyers will pay − your fee.

How do you calculate MAO for a wholesale deal?

You calculate MAO for a wholesale deal by working out what buyers will actually pay, then taking off the fee you need. The sample deal: ARV $300,000, repairs $30,000.

1. Get the ARV and repairs right.
   Real comps and the real house: $300,000 and $30,000.
2. Work out what a buyer can pay.
   ARV − 8% selling costs, ÷ 1.15 for their profit, − repairs and holding, ÷ 1.02 for buying costs: $187,800. Every line: how to calculate your assignment fee.
3. Check it against what investors here actually paid.
   ($187,800 + $30,000) ÷ $300,000 = 72.6%; 5 of 8 recent investor purchases nearby paid that or more. How: how to determine your assignment fee from real buyer data.
4. Decide the least fee worth doing the deal for.
   Say $30,000.
5. Subtract it. That’s your MAO.
   $187,800−$30,000=MAO $157,800

   Open lower, negotiate, and never go above it.

See how much profit to leave your cash buyer.

How to calculate MAO: a beginner’s example

Here's how to calculate MAO on a real deal, start to finish:

1. Find the ARV from comps: similar fixed-up houses nearby that sold recently point to $300,000.
2. Estimate repairs: walking the house, you price the work at $30,000.
3. Work out what buyers will pay: after their buying, holding and selling costs, and keeping 15% for themselves, buyers near you will pay up to $187,800 for the contract.
4. Decide the least fee worth doing the deal for: say $30,000.
5. Subtract: $187,800 − $30,000 = $157,800. That's your MAO.

Now open lower, negotiate, and never go above $157,800. If you sign at $149,300, you've made $8,500 of extra room for your fee before you've even found a buyer. See how to calculate your assignment fee for the buyer's side of the math.

MAO vs. assignment fee: what’s the difference?

MAO and your assignment fee sit on opposite sides of the same deal. MAO is about the seller: the most you pay. Your assignment fee is about the buyer: what you add on top of what you paid. Both come out of the room between what the seller accepts and what buyers will pay:

• MAO = what buyers will pay − the fee you need.
• Assignment fee = what buyers will pay − your contract price.

The number that connects them is what buyers will pay. Get that right and both are easy; guess it and both are wrong.

Does MAO include your assignment fee?

Yes — in the wholesaling MAO formula, your assignment fee is included: you subtract it to get your offer. But the formula doesn't work out that fee. You type it in. Want $10,000 and your MAO is $177,800; want $30,000 and it's $157,800 — same house, same buyers. The formula can reserve room for a fee; it can't tell you whether buyers would pay more. See why the 70% rule doesn't set your fee.

Do you subtract the assignment fee from MAO?

Only if your MAO doesn't already include it. If your number is the buyer's top price — what a buyer can pay — subtract your fee to get your offer to the seller. If your number already came from a formula that subtracted a fee, subtracting it again counts your fee twice and makes your offer too low.

Before you subtract anything, ask what the number actually is: the buyer's top price, or your offer after your fee.

Why do wholesalers mean different things by "MAO"?

Wholesalers mean different things by MAO because the term is used for two different numbers. Some use it for the buyer's top price — ARV × 70% − repairs. Others use it for their own offer to the seller after taking off their fee. Some trainers call the second one WMAO: the wholesale maximum allowable offer (WMAO) is the buyer's maximum price minus the wholesaler's fee — the most a wholesaler can offer the seller.

When someone quotes you an MAO, ask which one they mean. A $20,000 difference can hide in that one word.

Is MAO the same as the 70% rule?

No — the 70% rule is one way to estimate MAO, not MAO itself. MAO is the idea: the most you can pay. The 70% rule is a shortcut for the buyer's side of it. On the sample deal, the percentage that matches what buyers actually pay is about 72.6% of ARV, not 70% — and on another deal it could be 65%. That's why the percentage should come from what buyers near you actually pay. See why the 70% rule doesn't set your fee.

How does your seller price affect your assignment fee?

Your seller price changes your fee dollar for dollar, because what buyers pay doesn't move when your contract does:

Every $10,000 you pay the seller is $10,000 off your fee. Your assignment fee is made — or lost — before you ever send the deal to a buyer. See how to price a wholesale deal.

Should you offer the seller your MAO?

No — not as your first offer. MAO is your walk-away number, the most you can pay; your offer should start below it and leave room to negotiate. If you open at $157,800 and the seller would have taken $149,300, you just gave away $8,500 of your fee without knowing it — the seller-side version of charging a buyer too little.

That doesn't mean lowballing. The seller needs a price and terms that solve their problem, and sometimes paying a bit more to win a contract you'd otherwise lose is the right call. Just make it knowingly.

A simple way to plan a negotiation: know three numbers before you call the seller. Your opening offer (well below MAO, but still respectful of the house and the seller's situation), the price you'd be happy with, and your MAO — the point where you thank them and walk away. Most beginners only know one number, and it's usually the one they open with.

Can negotiating below MAO increase your assignment fee?

Yes — every dollar you negotiate below your MAO is a dollar more room for your fee, as long as buyers still pay the same. Set your MAO at $157,800 for a $30,000 fee and sign at $149,300, and you now have room for $38,500. Whether you charge all of it depends on how many buyers still buy at that price — see what the maximum assignment fee is.

What happens if you go above MAO?

If you go above MAO, the room for your fee shrinks toward nothing. On the sample deal, a $185,000 contract leaves $2,800; at $187,800 there's nothing left, and above that no fee works at all. No buyers list or marketing can fix it — the room was spent on the contract.

If you're tempted to go higher, recheck the numbers rather than stretch them: a better ARV or lower repairs may justify it. Wanting the deal doesn't.

Can your MAO be wrong?

Yes — your MAO is only as good as the numbers under it, and a precise-looking figure can be badly off. On the sample deal with a $30,000 fee, the MAO is $157,800. Change one input:

• The ARV is really $285,000, not $300,000: buyers pay up to $177,300, so the MAO is $147,300 — $10,500 lower.
• The repairs are really $60,000, not $30,000: buyers pay up to $158,400, so the MAO is $128,400 — $29,400 lower.

Sign at the first MAO in either case and there's little or no room left for your fee. Then it looks like buyers are rejecting your fee, when the problem was the contract. See can an assignment fee be too high?.

This is why getting the ARV and repairs right comes before any formula. Walk the house, price the repairs room by room, and choose comps that really match — same area, similar size, fixed up to the same level, sold recently. A precise-looking MAO built on a guessed ARV is still a guess.

Why should buyer data set your MAO?

Buyer data should set your MAO because the buyers decide what the deal is worth to you. Most wholesalers find out what buyers will pay after they've signed the seller — and some find out there was never enough room. Starting from what investors near you actually paid means your offer to the seller already knows what the deal can be sold for.

It also works the other way. If buyers near you pay more than a 70% formula says, your MAO can be higher — and you win contracts other wholesalers can't afford, without giving up your fee.

MAO vs. the buyer’s maximum price: which is which?

The buyer's maximum price is the most a buyer can pay for the contract; your MAO is the most you can pay the seller. The gap between them is your fee. On the sample deal the buyer's maximum is $187,800; with a $30,000 fee your MAO is $157,800. Mixing up the two is the most common MAO mistake — it's how wholesalers end up offering the seller what the buyer would pay, with nothing left for themselves.

How do OfferAid and MaxFee work on opposite sides of the deal?

OfferAid and MaxFee cover the two sides of the same spread. OfferAid helps you work out what to offer the seller. MaxFee works out what buyers will pay and the highest fee your contract leaves room for. Your MAO sits between them: what buyers pay, minus the fee you need.

How do you get your MAO right?

You get your MAO right by starting from the buyers, not a percentage:

1. Get the deal right — a defensible ARV, real repairs, the buyer's buying, holding and selling costs.
2. Work out what buyers near you will pay — from what investors actually paid, not a percentage.
3. Set your MAO = that price − the least fee worth doing the deal for. Negotiate below it.
4. After you sign, find the highest fee your contract leaves room for — it's often more than the fee you planned.

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