Auction Guide Price vs Selling Price
When you list a property for sale at auction, one of the first steps will be to agree on your guide and reserve price. The reserve is the minimum price you will sell for at auction and is kept confidential between you and the auctioneer. The guide price however is displayed on the auction marketing details and gives an indication of the sellers' expectations. However, guide prices vs selling prices are often different.
Let’s run through all you need to know about auction pricing – and why picking the right pricing level can make a significant difference to your prospects of a quick sale.
Auction Guide Prices Explained
A great guide price will generate interest and encourage bidders to follow the property once the auction begins – without under-pricing the residence or being inflated, thus deterring buyers who may otherwise have been interested. It may not be what the property sells for and could be identical to the reserve or within 10% of the bottom guide figure – but provides a rough idea of what you and the auctioneer expect to make.
Around 15% to 25% of all properties sold at auction achieve more and even double the guide price, so it remains an indicative figure purely for informational purposes. This indicates that the guide price can be lower than the eventual selling price on some occasions
Advice on Setting a Fair Auction Guide Price
Choosing the right balance when setting auction prices can be complex. On the one hand, you want to encourage buyers to register for the auction and to follow proceedings on the day, with competitive bidding a great way to achieve a sale value. A good auctioneer will always recommend a guide price and reserve price based on their own professional experience and by balancing both buyers and sellers expectations.
How to Choose Your Auction Property Guide Price
Whilst the auctioneer is likely to provide advice on the guide price, there is a method to set one. The initial step to picking the right guide price is to think about who your target audience is and why your property will appeal (is there likely to be high demand). It's also important to evaluate the realistic value of the property and any costs the buyer will be expected to bear.
For instance, a property needing improvements and repairs costing roughly £100,000 to reach an end valuation of closer to £500,000 could attract a fairly reasonable guide price.
Setting the guide price at between £225,000 and £275,000, depending on the area and the square footage of the property, would potentially mean hitting £300,000 – while emphasising the development potential and the strong profitability forecast.
Looking behind the sums from the buyer’s perspective is useful. In this theoretical scenario, we’re considering selling a property for around £275,000 with £100,000 of anticipated work to bring the residence into good condition – a total investment of £375,000, plus fees.
The guide prices remain viable and attractive if the property is realistically likely to be valued at £500,000 – or more – after that, returning a gross profit of £125,000 or a return of 25-30%on the investment.
This element is why selling at auction is so different from a private treaty sale when almost every interested buyer will be looking for a property to buy and live in. Although some will be keen to find homes with the capacity to add value, the immediate profit margins available are often most tempting to developers.
While the guide price isn't the minimum, it indicates the seller's expectations, in most cases, reaching a final sale bid above both the reserve and guide value.
Expert Advice on Selecting the Optimal Guide Price for Your Property Auction Sale
As we've seen the guide price and the selling price can be quite a distance apart (in a good way!). Picking a guide price is more involved than simply making a rough guess as to what property or plot of land is likely to sell for at auction. It can be a fundamental part of the property marketing process and dictate the types of buyers who are most inclined to register for the auction.
It's also important to be mindful of the limitations on variances between reserve and guide prices. However, this may not apply if marketing doesn't feature a fixed guide price or the property is open to bids at any starting point with a reserve in the background.
If you'd like a chat about what reserve and guide prices are most appropriate for your property or to discuss any of the information within this guide, please call the Clive Emson team at any time or fill out a FREE appraisal form here.
We have decades of experience supporting auction buyers and sellers and managing the sale of varied property types, from residential homes to unusual constructions and empty plots, and we will share our thoughts and insights to help you make informed decisions.
