Every month we dive into a host of topics within the property world and quite often some of our most popular content is where we explain some of the varied terminologies the housing market uses. This month we look at guide price and what it means when you look to buy a house.
In its most simple definition, guide price is the approximate value that the seller is looking to get for a property. This can be applied to both auction properties and those on the traditional market. With a guide price, you are openly inviting people to view, offer and negotiate on the property.
What is the guide price used for?
In many cases, a seller, or perhaps the estate agent, will look towards using a guide price to drive more interest in a property. It could be in a desired location, it could be a particularly outstanding property, or it could be a property in need of a lot of work that the owner wants a quick sale on.
Those looking to buy can view the home and either negotiate a better price or make an offer based on the guide price. With an expected increase in interest due to the incentivising price being shown, a bidding war could start. This could see a higher sale value achieved for the owner.
It may also be used when valuations for property in the area are a little inconsistent. The estate agent may not have been able to give a true valuation when compared to other properties in the area, or the seller may have a price in mind that doesn’t match what the estate agent values the home at. In these circumstances, a price in between the two tends to be agreed upon.
Guide price is commonly seen in online property auctions and can change from the moment the property is first listed on auction portals up until the auction process begins. Properties at auction won’t often sell at the guide price and tend to go for a much higher price unless the bids entered are receiving little competition.
What is the difference between guide price and asking price?
It is very easy to get muddled with some of the different terminology used in the housing market and the two terms “guide price” and “asking price” are perhaps two of the most commonly misunderstood.
A guide price is set to illustrate the minimum that the seller is expecting to get for the property and as we mentioned earlier, invites the opportunity for negotiation. An asking price is what the owner is asking for, however, depending on how the market is going at the time of sale, the asking price may not be met or could be exceeded.
How do I know if the property I want is listed with a guide price?
When looking to buy a house through the traditional market, any price listings will indicate that the price you see on the advertisement is a guide price only. In an auction situation, you will see a guide price as an amount set within 10% of the reserve price. Alternatively, you could see the price set as a minimum and maximum range where the guide price sits in between.
How is the guide price worked out?
When setting the price for a property, many things must be weighed up to give an accurate and relevant valuation. So, when it comes to listing a property on the open market, both the seller and the estate agent must consider a few factors. Current economic climate, the housing market situation, and the area the property is in just to name a few.
The guide price will be set factoring in these things as well as the minimum price that the seller is aspiring to achieve.
At auction, these prices will be set when the auctioneer gives a valuation and then the seller can set a reserve. Quite often, the reserves are set low to encourage more bids.
What offer should I make on a guide price property?
With a guide being just that, a guide, you are welcome to make any offer you see fit but as this encourages people to put in low offers, the risk of missing out can be quite high. The seller may be offended by the low offer and not entertain any further offers from you. An acceptable level of negotiation is to start at 10-15% lower and see where you end up.
In some cases, this may be the best offer they have received and if a quick sale is what they are after, you could find yourself avoiding a bidding war and securing the property for less than market value.
At auction, the absolute minimum offer must be the guide price or above. However, if the property is not gaining lots of attention, there is every chance that the guide price could be lowered.
How do mortgage valuations affect guide price?
When buying a house, you want to be sure you are getting the best possible value. A mortgage valuation will be carried out when you show interest in the property on behalf of the lender. They will assess how much the property is worth and therefore how much you can borrow. If this amount equates to much lower than the amount the seller has in mind, buying this property could be difficult.
However, if the guide price and the mortgage valuation are similar then you can proceed and possibly attempt to negotiate a lower price. In many cases, a low offer will be met with short shrift, however, if the seller needs a quick sale, a respectful low offer could be accepted.
Can guide price be trusted?
In most cases, a guide price is set with the market in mind and will be as close to a real representative value of properties in the area as you can expect. In some cases, it isn’t and that is why you should always engage in plenty of research before making any offers.
If you are looking to buy or sell a property, consider SOLD.CO.UK, an online estate agent that endeavours to get your property projects moving fast. Why not browse our selection of properties for sale and see if you can discover your new forever home. Or, if you’re looking to sell, get a free online house valuation today!