26th September 2020
How accurate are guide prices at property auctions?
If you’ve ever been to a property auction, or looked through a property auction catalogue, you’ll most likely be familiar with the term “guide price”. It’s often the first thing you notice when considering bidding on a property, but many people still wonder: how accurate are guide prices at property auctions?
What is a property auction guide price?
First things first, what is a property auction guide price? Seasoned property investors will no doubt know their way around property prices. But once the terms “reserve price” and “sold price” are also thrown into the mix, beginners may find themselves scratching their heads as to what it all means, what each price refers to and how much they should actually bid at auction.
Every property for sale by auction will have a guide price, either as a single figure or a price range. The guide price is an indication of the property’s value at the time of entering the property into an auction, and is given to assist bidders in deciding whether or not to pursue a purchase. As the reserve price is not fixed at this stage and can be adjusted by the seller at any time up to the day of the auction in light of the interest shown during the marketing period, a guide price is issued. We would normally expect the reserve price to be within a range of approx. + or – 10% of the guide price. Both the guide price and the reserve price can be subject to change up to and including the day of the auction.
The reserve price, agreed by the seller and the auctioneer before the auction, is the price at which the auctioneer has been authorised to sell the property. The reserve price is the minimum value the seller will accept, therefore the property cannot be sold for less than this. If the reserve price is not met during the bidding process, the lot will be withdrawn from the auction. Much like the guide price, the reserve price may change throughout the marketing period if there is a lot of interest in the property.
This one is pretty self explanatory – the sold price is the value of the highest bid, therefore the price the property has sold for (if equal to or greater than the reserve price). It should be noted that this does not include any of the associated fees required to purchase the lot. The sold price can differ from the guide price depending on how many bids were placed, and the popularity of the property at the time of auction.
How are guide prices created?
The property guide price is often based on many factors at the time of auction, which is why they’re often subject to change. From time to time, a seller may choose to set the guide price lower than the valuation, particularly if they are seeking a quick sale.
A number of factors are considered when determining an appropriate guide price. The property’s features, such as the year it was built, number of bedrooms and roof type, plus any renovations or upgrades made by previous owners, will usually be taken into consideration. The valuer will also review comparable sales, locating three to five properties in the same area and of similar size that have sold within the last six months.
However, take into consideration that property auction guide prices are often set lower than the actual value, in order to encourage bids.
Are guide prices accurate?
Guide prices at SDL Auctions are as accurate as possible – this is because they are generated using a number of factors closely aligned with the value of the property. The guide price, however, should not be confused with a property valuation.
Whilst the valuation is of course factored into the guide price, it’s not the only thing taken into consideration. The guide price is an indication of what the seller wants to achieve.
If you’re interested in buying in an auction, we recommend you do some research in the run up to auction day. You can then take all factors into consideration to determine whether you’re likely to get a price you’re comfortable with, as a property is often worth more than the guide price. This may be done to attract more bidders, and offers buyers the chance to bag a great deal on auction day.
With SDL Auctions, you can rest assured that all our guide prices are fair to both the buyer and the seller. The decision to place a bid ultimately comes down to what you’re comfortable with paying.