A guide price serves as a valuable benchmark, enabling you to identify auction properties that align with your financial capacity without resorting to guesswork regarding the potential final sale price. Several elements influence the determination of a guide price. Prospective buyers often seek to understand these influencing factors, their relationship to the property’s inherent value, and potential fluctuations that may impact the perceived accuracy of guide prices.
Changes to the guide price can occur leading up to the auction, and these should be taken into account when deciding whether to pursue a property. These changes can include reserve prices, sold prices, and property valuations that differ from the initial guide price. For those new to property investment or setting a budget, understanding these terms is key to determining a comfortable bidding price. Let’s explore what these terms mean and how to interpret them.
Understanding Auction Guide Prices
An auction guide price is precisely what it suggests – a guide. It is intended to assist potential bidders in deciding whether to proceed with a purchase. It can be presented as a single figure or a price range. Typically, the guide price is used as the starting bid at auction, serving as a reflection of the property’s perceived value at the time of listing and the seller’s minimum expectations. This price is not fixed and is subject to change by the seller or auctioneer based on the level of interest in the property.
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A guide price is usually accompanied by a reserve price, which is confidential to the seller and the auctioneer. The reserve price will typically fall within a range of + or – 10% of the guide price. Bidding may commence at less than the guide price; however, if the bidding does not meet the reserve price, the bid can be rejected, and the property will remain unsold. Conversely, strong interest in a property may drive the bidding beyond the guide price. It’s worth noting that guide prices are often strategically set lower than the actual property value to stimulate bidding activity and excitement.
Factors Influencing Guide Price Creation
Several factors contribute to the determination of a property’s guide price at auction. These encompass the property’s features, including the number of rooms, year of construction, roof type, and any renovations or modifications undertaken by previous owners. Additionally, valuers consider comparable properties of similar size within the area that have been sold within the past six months.
In 2014, the Advertising Standards Authority established new regulations for establishing guide prices, aiming to provide potential buyers with a more accurate estimate of the final sale price of auction properties. A crucial rule within these guidelines stipulates that a guide price must be presented as a single figure or a range that remains within 10% of the seller’s reserve price and cannot be less than 10% of the reserve price. Therefore, you might anticipate adding 10% to the initial guide price to align with the seller’s minimum requirement, before accounting for the potential impact of other bidders driving up the price.
Understanding Property Auction Reserve Prices
The reserve price is a predetermined minimum value agreed upon by the seller and the auctioneer before the auction commences. This price remains confidential between these two parties. If the bidding fails to reach the reserve price, the auctioneer is not authorized to sell the property to the highest bidder, and the lot will be withdrawn from the auction. Similar to the guide price, the reserve price may be adjusted based on the level of interest generated during the property’s marketing phase. However, this price must be finalized before the auction begins. The reserve price can be up to 10% higher than the guide price, which should be factored into your purchase decision.
Decoding Property Auction Sold Prices
The sold price represents the final price at which the property is sold, reflecting the highest bid achieved. However, it’s important to note that this price does not encompass any associated fees required to complete the purchase of the lot. Reviewing sold prices can be beneficial if you missed out on a property, as comparing the sold price to the guide price provides insight into the property’s popularity. This can serve as a rough indicator of what to expect from similar properties in the future.
How Accurate Are Guide Prices at Auction?
The primary objective of an auction is to achieve a favorable price for both the seller and the buyer in an efficient manner. This is accomplished by setting an appealing guide price that attracts bidding activity and generates interest, fostering competitive bidding that can elevate the selling price of a property. While this benefits the seller by enabling them to quickly obtain a price they find acceptable for their property, it also provides the buyer with a transparent and rapid means of purchasing a property at a price they are comfortable with. Furthermore, auctions often present opportunities to uncover hidden gems that have the potential to be acquired at exceptional prices, making auctions particularly attractive to prospective buyers in search of their dream property.
At SDL Property Auctions, the goal is to maintain guide prices that are as accurate as possible. These prices are determined by considering several factors closely aligned with the property’s value. However, it is important to note that, on average, auction properties can sell for 15-25% more than the guide price. Conversely, properties can also sell for less than the guide price, depending on the level of interest. Therefore, it’s advisable to incorporate a 15-25% buffer into your budget to avoid missing out on a specific property. Furthermore, it is important to remember that guide prices do not include any fees associated with the sale of the property, so make sure you don’t bid outside of your budget and are left unable to cover the required fees.
For both novice buyers exploring auction purchases and experienced property investors, conducting thorough research in the lead-up to the auction day or event is strongly recommended. Consider all the factors that will determine whether you can offer a price you’re comfortable with, as it’s important to remember that a property will be worth more than the listed guide price, and you should be prepared to account for this.
SDL Property Auctions aims to keep its guide prices fair to both the seller and the buyer. When it comes to auction day, prices may be driven higher by other interested parties, and ultimately, the decision to bid lies with what you’re comfortable paying.
To begin your journey into property auction purchases, explore current and upcoming auction lots in your desired area to gain a clearer understanding of expected guide prices for different types of properties.
