What does “guide price” mean?
Guide price is a term often bandied about in the home buying process. But what does it mean and how seriously should you take it? We explain all below, with help from the estate agency Portico.
May 12, 2022
6 minute read
What is “guide price”?
Simply put, a guide price is a general indication of the minimum the seller wants to achieve for the sale of their property.
For properties sold at auction, the guide price is the amount at which the seller has set their reserve price or where bidding is expected to start from.
The estate agency Portico explains, “Despite how it may sound, guide prices are not a suggestion of a property’s valuation. And it isn’t necessarily how much the seller will get for their property. This depends on a number of factors such as the local market, competition and how much someone is willing to pay.”
When buying a property through a high street agent, a guide price is an indication of where to consider starting your negotiations. Sometimes, agents will list a property with a guide price to attract more interest and hopefully the onset of a bidding war. It is also often used where the property is a fixer-upper and in need of a lot of work.
When considering buying a property at auction, a property’s guide price is typically the first price you will see. However, it’s important to understand that a guide price is not the same as an asking price, nor is it a suggestion of the price the seller hopes to achieve. Guide prices are set to indicate the minimum expectation the seller has, which can change at any time prior to the auction commencing. The only time that it may end up being similar to the final selling price is in the event of minimal competition or interest at the time of the auction.
What is a reserve price?
The term ‘reserve price’ is used with properties sold through auction. A reserve price is the agreed minimum amount between the Auctioneer and Vendor at which the property can be sold. The auctioneer is not permitted to sell the property for any bids below this amount.
The reserve price is not usually disclosed prior to or during the auction, and Auctioneers may start the bidding below this value to get the competition rolling. Guide prices can, however, give you a reasonable expectation as to where the reserve price is set.
How are guide prices given?
Guide prices can be shown in several forms. When buying and selling a home through a high street agent, it can be found in the property listings where applicable.
In an auction setting, a guide price can be set as a single figure that falls within 10% of the reserve price, or they can be given as a minimum and maximum price range within which the reserve price sits.
How is a guide price set?
With estate agent listings, the guide price is set in accordance with the minimum price the seller hopes to achieve and the agents’ knowledge and research of current property values in the area.
With auctioned properties, once the auctioneer determines the valuation of the property, the seller can set their reserve price. Obviously, the lower the reserve price, the more likely it is that the property will be sold. Therefore, sellers set their reserve price based on their motivation to sell, and what they can afford to sell at to cover their mortgage and any other expenses.
Once the reserve price has been set, the auctioneer will determine the guide price.
In 2014, the Advertising Standards Authority established new guidelines for guide prices. Within these guidelines are two prominent rules:
- the guide price must indicate either a range or a single price figure that is within 10% of the reserve price
- the guide price can be no more than 10% lower than the seller’s reserve price
These rules and regulations help potential buyers predict with some accuracy where the reserve price could be set.
Do guide prices only relate to auctions?
All properties sold via auction have a guide price, but not all properties with a guide price are necessarily being auctioned.
Sometimes, an estate agent will set a guide price for a listed property to drum up interest. Advertising a property at a lower amount can create more interest and bidding activity, potentially resulting in a quicker sale.
If you’re not sure whether a property with a guide price is going up for auction or to be sold through an estate agent on the open market, check the description and who has listed the property. Estate agents do sometimes list properties that are headed for auction, but they will usually include this information in the property description.
What should I offer when there’s a guide price?
This depends on a number of factors. Firstly, if the property in question is being sold through an estate agent and not an auction house, you are free to make any offer you like. Of course, you run the risk of offending the sellers if your offer is much lower than their guide price, but then again, you never know your luck and how motivated the sellers actually are.
Typically, respectable offers below a guide price fall within 10-15% of the figure set.
When buying a property at auction, however, you cannot offer any less than the set guide price. The guide price is essentially the same as a starting bid, and the property will likely sell for more than this figure.
If there is limited interest or competition, the guide price may be reduced to encourage more bidding. Still, even if you win the auction, the property will only be sold if your winning bid has reached or surpassed the seller’s reserve price.
Should I trust the guide price?
While the hope is that a guide price has been set in accordance with the property’s current market value, this isn’t always the case. So you should do your research on local sold prices for similar properties before making an offer.
Auction houses do try to keep within the realms of a realistic market value to maintain sales success rates. But ultimately, the guide price can also simply be an indication of whatever the seller wants or needs the property to sell for. So it’s recommended you do your own due diligence prior to the auction and research the recent sold prices.
What if the mortgage valuation differs from the guide price or the offer accepted?
When it comes to the mortgage lender’s valuation, if the value of the property is deemed higher than the amount you paid for the property, you have made a wise investment. If, however, the mortgage lender feels the property is worth less than the sale price or even the guide price, you may need to renegotiate the price or else challenge the lender’s valuation.
Success in challenging a down-valuation will depend on you presenting some strong evidence. This should include a minimum of three recent and comparable property sales. You can request assistance from your estate agent and the seller to put your case together. Find more information in our guide on what to do if your mortgage is declined.
Guide prices are not designed to indicate what a property will eventually sell for. Most properties sell for more, while some occasionally go for less. Ultimately, a guide price is set based on the seller’s wants and needs, so it is up to prospective buyers to do their own research when deciding the amount you pay for a property.
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