What does it mean by guide price?

By

RooftopLiving Team

Posted

25th July, 2020

Categories

Property News

What does it mean by guide price?

Guide price is another term that makes up the rich jargon of property expressions. Sometimes, when houses have a higher value, sale particulars might use different terms such as OIRO which stands for “offers in the region of” or OIEO, “offers in excess of”. These expressions indicate the suggestion of a price level or range.

The guide price is closely related to the mortgage valuation, the estimate of how much a house is worth. When the mortgage valuation and the guide price are similar, negotiations are more likely to be smooth. If a house is believed to be overpriced, negotiations will start with a lower offer. Unless the vendor needs to sell as soon as possible, the probable outcome is the rejection of an offer that is viewed as too low for the house’s worth.

These subtle mechanisms are just an example of how important it is to have, at least, a rough idea of how the housing market works and what certain terms mean. The buyer who knows what a guide price is will certainly understand that guide prices are always open to negotiation. However, the final price will most likely depend on factors related to the area where the property is situated and the level of supply and demand.

So, what does the guide price mean in the property market?

In the property market, guide price refers to the approximate amount the owner hopes to achieve. How is the guide price normally used? Some estate agents use it as a strategy to encourage potential buyers to view the property. This usually happens if a property has a real selling potential or it is very attractive, which is referred to as a real deal.

The guide price gives the opportunity to the owner to see what offers come into their agents over the following weeks. It is some sort of bait to “lure” potential buyers into opening an offer or negotiate. However, in order for the guide price to be “right”, there has to be an interested purchaser before the seller can begin the process. There is no doubt that experienced estate agents usually know what price the seller is likely to accept and what’s the real interest in the property.

Another case scenario is a disagreement over the market value of the property. In this situation, the seller might choose to list a guide price. Normally, the seller’s expectations are to sell the property at a higher price than the estate agent’s valuation. Instead, from the agent’s perspective, the seller will have to accept a lower sum.

Can you offer lower than the guide price?

It is certainly possible to offer lower than the guide price. The best thing to do in this case is to have a good knowledge of the market because this is key to understanding the prices properties are being sold in a specific area and at a specific given period. For example, if similar properties in the area take too long to be purchased, or if they are selling below the guide price, the buyer will automatically deduce that the offer can sensibly be lower than the price the vendor is selling it for.

What’s a tip to get to know the housing market in a given area? Going through local property listings will help a lot. These are always published in the local press as well as on the net. Some of the most known property websites are Zoopla and Rightmove: here potential buyers can find the last price for the property they are interested in as well as the most recent prices the houses in the same street are sold for. This information is very useful because buyers can negotiate the house price according to how much the property next door was sold for. Another important and incredibly useful information is knowing the amount of money the vendor spent to purchase the property on sale.

This can give way to different possible scenarios: if the house was bought years ago, it is likely that the seller is making huge gains with a much smaller mortgage. Therefore, their mindset will be much more flexible as to what they’d accept. On the contrary, if the property was just recently purchased, it is possible vendors will need to accept a certain offer to simply cover their existing borrowings.

How much under asking price should I offer?

Buying a house is always a strategy game where the final objective is to find a bargain that suits both parties. The seller will put a price deemed appropriate for the value of the property while the buyer will try to save some money requesting a reduction of the initial price.

Offering below asking price is reasonable and perfectly fine. However, it is unclear how much under asking price it is reasonable to offer. This really depends but the golden rule is the buyer should never make an unfair proposal. Submitting an unreasonable low offer may offend the seller and the buyer may just lose out on the home they have always dreamed of. When the buying process starts, the buyer’s first thought is whether the seller is open to negotiations or not and how much below asking price the seller is willing to accept.

There are two aspects to offering below asking price: the buyer will want to make a proposal that will save them money and, at the same time, appeal to the seller. In order to make an offer, it is important to have a realistic budget (factors like income, monthly debt, etc., have to be considered at this stage) so that one understands which properties are affordable and which ones are not. In addition, a factor that will favor the buyer when asking less than the price is an active buyer’s market.

This means that there are fewer qualified buyers than there are houses for sale, giving buyers some extra negotiation power. There is another factor that plays a huge part in this strategy game: the property’s conditions. If this is damaged or needs repairing, a reduction in the price can be more than just a dream. Some significant repairs that make the price sink are the roof needing replacement, problems in the foundations, the home’s systems (electricity, plumbing, etc.) need to be renewed, etc.

Another situation where it would be acceptable to offer less than the initial price is when the house has been priced significantly higher than the price of other properties in the same street have been sold for.

Should I offer over the asking price?

This may sound awkward but it is another possibility in the complex world of the housing market. In reality, offering over the asking price is far from uncommon because there are buyers who are willing to give out more money if they are really in love with the home they are purchasing. It is more of an emotional decision rather than a financial one.

What’s the difference between the guide price and asking price?

The difference between the guide price and asking price is easy to understand, though it can sometimes be confusing especially for those who are new to the housing market. The guide price is the amount of money that the seller decides for the sale of the property in order to encourage potential buyers to develop some interest in the house. On the other hand, the asking price is the price that the seller puts the property on the market.

In other words, the asking price is the money that sellers hope to receive once their home is sold. There are situations when sellers have more chances to get a higher asking price for a property: for example, if the market in a given area is poor, then a seller can reasonably ask more money. The opposite happens when owners decide to overprice their property. This is the reason why good homes stay in the housing market for a fair amount of time.

When sellers start acting like they have more experience than a professional estate agent, they will give their property the price that they think it is worth it. This means the house is priced according to a subjective idea, not according to the current housing market as it should. Eventually, if the house is still unsold over time, owners will start to reduce the price so that the sale looks more attractive and more offers are placed.

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