The direct answer
ARV estimates a renovated property’s gross value. Maximum allowable offer is a proposed acquisition ceiling calculated from a chosen share of that value, less stated repairs and other costs. One is a value assumption; the other is a strategy-dependent price screen.
Keep the value question separate from the offer question
Comparable sales can inform an ARV assumption without determining what a particular buyer should pay. The buyer’s holding costs, selling expenses and required margin can differ. Label the ARV evidence and renovation condition first, then use those inputs in a separately defined offer model. A market-value estimate should not be reverse-engineered to justify a desired purchase price.
To apply the approach to an editable scenario, use the Maximum Allowable Offer Calculator. For the neighboring question, explore ARV Calculator.
Explain the target percentage and deductions
The target share of ARV establishes the amount available before the explicit repair and investor-cost deductions. It is not a direct calculation of net profit. Check what the reserved share is intended to cover so that fees are not both implied in the percentage and separately deducted without explanation. Changing the percentage changes the offer screen even when the comparable evidence stays the same.
Verify the ceiling through the full strategy
Run a proposed purchase through a flip budget, wholesale spread or other appropriate model. Review what happens if ARV is lower or the holding period longer. A negative formula result means the selected cost and margin framework leaves no positive acquisition ceiling, not that the property’s physical land or building has no value.
Worked example
ARV of $400,000 and a 70% target provide $280,000 before deductions. With $60,000 repairs and $10,000 other costs, the offer screen is $210,000. ARV remains $400,000; the $190,000 difference is not a calculated net profit because the screen does not itemize every project cash flow.
Open Maximum Allowable Offer Calculator and test your assumptions →
Common mistakes and limitations
Do not describe a maximum allowable offer as an appraisal or an amount a seller must accept. The target is based on the supplied strategy assumptions.
Rule-of-thumb calculator only. Market conditions, financing, taxes and required return vary by investor.
Frequently asked questions
Can two buyers use the same ARV and different MAOs?
Yes. Their target share, costs and margin assumptions can differ.
Does a higher ARV always justify a higher actual offer?
It raises this formula’s ceiling, but the evidence, funding and complete cost scenario still need review.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Read our editorial policy for the scope of these educational methods.