Updated over 7 years ago on . Most recent reply
Market Value versus MAO
Hello everyone! My name is Fade Aromolaran and I'm interested in Wholesaling and I am currently working on my first deal. I thought I understood the MAO concept but the scenario I'm in right now has me questioning the basis of it altogether.
So I have compiled a buyers list for the area I am looking into and found a seller in that area. The house under consideration is pretty worn down and hasn't been occupied in, what seems like, a while I get in contact with the owner and apparently a Realtor is already working with him to get rid of the house. I initially thought this was a no go until I read successful stories of wholesalers working with realtors. So I calculate the ARV out to be about 224k in that area. I use the 70% rule and estimate rehab to be about 30k which generates a MAO of about 120k. I thought this would be a great deal but when I talked to the realtor, he said he was looking for an offer of 250k. It seems overpriced compared to comps but this particular property has a lot size of 1 acre and they were looking to maybe sell it to be used as a commercial space. Either way, my offer was literally half of what he was looking for, which I feel like is the case for most of houses because the houses around had sold for that much.
So I was just trying to understand the relationship between the market value and the MAO because I don't understand why the people in this specific situation would ever sell for that low. Is the problem that I am just dealing with the wrong type of sellers? They seem motivated and aren't using the property but the price I'm offering just seems impractical.
What if I offered 200k (if they'd even take it)? Would investors still be interested in this and could there still be a profit margin or should I back out altogether? (Please refrain from "it depends" answers as much as possible haha) Let me know if you need more details to more accurately answer my questions. Thank you in advance!