How Accurate Are Guide Prices At Auctions?
Land registry data suggests nearly 20% of homes are sold at auction each year. Auctions offer a great way to find inexpensive properties in the UK. Distressed properties, repossessions, or those in need of renovation are often sold at auction. More than that, though, they offer a fast way to get on the property ladder. There’s a fixed timetable with a predetermined closing date in mind, and that can mean that you know exactly when you’ll purchase a home and when you’ll take possession of that home. If you’re interested in obtaining a home in a property auction, though, you’re likely to see a guide price attached to each home you consider. You may also see an auction reserve price attached to some sales. What does guide price mean? How does it differ from a reserve price for auction? Here are a few answers that may help.
The Home Auction – A Definition
You may hear lots of investors throw around the term “modern auction,” meaning house auctions like you’re considering. A home auction works a lot like any other type of auction. Properties are auctioned off to the individual who bids the highest.
In a home auction, a seller submits his or her property to the auction house and offers a description of the property, pictures, and any legal documentation necessary for the sale. The auction house then compiles a catalogue (virtually or on paper) that tells a bit about each property and the guide price for each one. A buyer who is interested can arrange a viewing of the property to decide whether they’d like to place a bid. They can also have the property inspected and legal checks on the property performed. On auction day, bidders participate in various ways – in person, online, or over the phone – and the highest bidder wins the property.
What is the Guide Price?
As mentioned before, the auction catalogue will list a guide price for each property. What is a guide price? A guide price is just a number that helps you decide what a given property might be worth. It helps bidders decide whether they should move forward with a purchase or walk away from it. In most cases, you can think of a guide price a bit like you think of an asking price on the open market. What’s the difference between a guide price vs an asking price? Asking prices are often more fixed than guide prices are. In most cases, the guide price vs asking price debate can be settled like this. An asking price is what the seller wants for the property. A guide price is what the auction house believes the price of the property actually should be.
Where Does a Reserve Price Fit In?
You’ll usually see an auction with reserve price figures too. In many cases, you won’t know what that reserve price is, though, but it’s usually somewhere around ten percent higher or lower than the property itself. If the reserve price isn’t met during the auction, the property won’t actually be sold.
Is the Guide Price Accurate?
Among the prices of properties sold at auction, you’ll find a secret about guide prices. They tend to be a bit lower than traditional house-selling prices. When auctioneers set a guide price, meaning a price to help you get interested in the auction, they tend to set it a bit low so potential buyers will develop that interest. The price a property fetches may end up being much higher than the guide price ultimately. It could also be lower. The goal is to keep them mostly accurate, as they help attract buyers to find some hidden gems on the property market. They’re not typically too low or too high, as buyers might walk away. The best guide price, then, is to use your own experience in the world of auctions and properties. What should a given property in which you’re interested go for? When you better understand those numbers, you’ll be able to see whether the auction house you’re working with has a solid guide price or those that are a bit lower to help attract potential buyers to the auction itself.