How Property Guide Prices Work
Buying a property at an auction is a very different experience to buying through normal channels. Along with the risks and the benefits that can come from getting a bargain at a property auction, there are some unfamiliar terms and lots of jargon to understand before you bid.
New bidders will hear about auction conduct conditions, lots, reserve prices and many more strange expressions. One of the most frequently used phrases is ‘guide price’. Below you can read all about guide prices at property auctions, what they are and how they work.
What Does Guide Price Mean?
A guide price is a figure used to market a property before the auction is held. It shows potential bidders the possible value of the property but is not necessarily an indication of the price it will sell for. The final price of an auction property will depend upon the type of property, the location and ultimately the interest from bidders.
An auction will put a guide price on the property before the viewing and the actual auction takes place. This can be a single figure or may fall within a price range. Even after first setting the initial guide price, there can be changes but the latest and final figure will be shown in the auction catalogue.
The Difference Between Guide Price And Reserve Price
Unlike a guide price which is used to market a property, the reserve price is a figure which the seller and the auctioneer set before the auction. The auctioneer cannot sell the property unless the reserve price has been reached.
If the property guide price is set at a single figure, the reserve price cannot be more than 10% above that figure. If the guide price at auction is set within a price range, the reserve price must fall inside that range and must not be greater than the top figure. A property that does not reach the reserve price at auction can be offered to all interested parties after the auction is over. If an accommodation can be found, the property can be sold after the auction but the terms of an auction sale still apply.
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Open Market Value And Guide Price
A guide price at auction is different to the open market value. The OMV is an estimation of the sum that a property would achieve when sold in an open environment. This value presupposes that contracts will be exchanged and completed between an unrelated seller and buyer on a set date.
Sellers and buyers often view property values in different lights. A guide price is reflected by the state of the property market and the possibility of selling quickly at auction. A market value will include other factors including but not limited to the condition of the property and the local supply and demand. A property may sell quickly if the guide price is set at the correct amount and the auction attracts many interested bidders.
Property Guide Price FAQ
Why Is There A Guide Price At Property Auctions?
Guide prices at auctions are intended to give potential bidders an indication of the value of a property. This is the level at which the bidding starts and the property cannot be sold for less than the reserve price.
Are Property Guide Prices Misleading?
In 2018 the Advertising Standards Authority ruled against a complainant who challenged the guide prices at an auction. Both guide prices and reserve prices are routinely updated before the final catalogue is produced. It was ruled that as long as potential customers received the final guide price before the bidding began, original guide prices were not judged to be misleading.
Can I Make An Offer That Is Lower Than The Guide Price?
Yes you can make an offer that is lower than the guide price at auction. Some sellers will want to move the property quickly and if the offer is reasonable they may accept. If you think that the property is overpriced compared to similar properties in the area it is worth making a reasonable offer before the start of the auction.
How Is A Guide Price Set?
If you want to put your property up for auction you will get a visit from the auctioneer who will discuss whether it is suitable for selling at auction. After the property is inspected and the auction team has learned all the relevant facts, you will be advised about the process and given a guide price. You do not have to accept this advice and can set your own guide price at auction.
It is important to note that the guide price as indicated by the auction team does not point towards the final bid and the property may sell for more. In the early stages of an auction the guide price may not be shown but it will be in place before the final catalogue is published.
Is The Guide Price At Auction An Accurate Value Of A Property?
Most guide prices are set lower than the actual value of an auction property. An initial or starting price at auction is only an indication of the value of the property when it is being marketed. The guide price is set to help ‘guide’ bidders towards a decision about whether they want to try to buy. Once a reserve price has been set, the guide price may well be adjusted. If the property has been valued and the owner wants a fast sale they may well set a lower guide price to stir up interest in the property.
Many factors are involved when a price is set. These include the age of the property, any special features, the number of bedrooms and any additional extensions to the original building. A seller will set the reserve price as the lowest possible amount they will accept at auction and the guide price as an indication of what they expect the sale to achieve.
Making An Offer On An Auction Property
The starting price of a property for sale at auction is usually based on the mortgage valuation. If you see a very interesting property up for auction you can make an offer before the auction takes place. Not all sellers will accept and may prefer to send the property to the open auction in the hopes of achieving a better price.
If you are knowledgeable about the area and think that the property is overpriced or that there is a glut of similar properties you may be successful in a lower offer than the guide price. The circumstances of the seller may well affect their decision. If they want a quick sale and have little or no outstanding mortgage they may be inclined to be more flexible. Similarly, someone who is selling to cover their debts may choose to accept a lower amount than the guide price in order to settle up and start again.
The downside to making an early offer that has been refused is that you will have shown your interest in the property thus giving the auctioneer prior information about possible bids.
Guide Price At Auctions And Unsold Properties
A property that has failed to make the reserve price may remain unsold at auction. After the auction is over the auctioneer will ask any interested parties if they want to make a separate bid. If it still remains unsold and the property is put up for auction again, the seller and auction team may decide to reduce the reserve price. Find out more about unsold property at auction and how you can benefit.
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