Why this can happen
PriceDNA is designed to show what price the selected goal can support after the modeled deal accounts for the costs and risks that affect real cash flow. Cautious assumptions can produce a lower estimate than an optimistic back-of-the-envelope calculation.
Costs the quick math may miss
The analysis can account for closing costs, vacancy, operating expenses, repairs, capital reserves, insurance, management, make-ready, financing, and other recurring income or expenses. Leaving those items out can make a deal appear stronger than the modeled operations support.
When to update the assumptions
Update an assumption when you have better evidence, such as:
- a verified rent roll;
- a firm insurance quote;
- a contractor estimate;
- actual tax information;
- confirmed landlord-paid utilities;
- documented operating history; or
- firm financing terms.
Conservative assumptions and price gaps are different questions
A PriceDNA Estimate below the asking price does not automatically mean the defaults are too conservative. The difference may simply show that the asking price does not support the selected goal under the current income, expense, and financing assumptions.
Use the gap analysis to understand the relationship between the asking price and the PriceDNA Estimate. Use this article when the concern is specifically whether the assumptions themselves are cautious.
What not to do
Do not change assumptions only to make the estimate match the asking price. The purpose of the analysis is to make the tradeoffs visible, not to force the deal to produce a preferred answer.