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Understanding Auctions - The Price Guide

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understanding price guides for property auctions

One of the most popular ways to sell property in popular areas, often yielding excellent results for Vendors, auctions can be a bit of a headache and even heartache for buyers. After weeks or even months of inspections, analysing suburbs (and even testing out the local cafes) having your dreams shattered on auction day by someone with more money is an outcome almost every buyer will face at least once. 

But auctions are here to stay, so if you’re looking at making a property purchase in the near future, it’s good to understand the ins and outs of this sales method. Over the next few weeks we’ll be exploring some of the various factors to consider when buying at auction in a bid (pun intended) to shed the light on the whole auction process.  Today we’ll discuss price guides. 

What is a Price Guide? 

A price guide is exactly what it says it is, an estimation of price, based on recent sales of comparable properties. Sometimes it’s a set figure or a guide which gives a price range of about 10% (for example $600,000-$650,000). It’s very handy to have access to price guides when doing your initial searches, particularly when trawling through the hundreds of properties on websites such as domain.com.au or realestate.com.au to see what you can likely afford. However when you start to filter through and isolate the handful of properties you want to inspect and investigate further then it can be handy to do your own research to determine a property’s realistic sale price.

Price guides can be (sometimes intentionally) way off causing disappointment to potential buyers not to mention wasted expenses such as getting building and pest inspections done and employing a lawyer to look over the contract. A practise known as ‘underquoting’ has been known to occur within the industry where real estate agents deliberately quote lower than the estimated property price in a bid to gain more interest. More buyers means more competition, and in theory a higher end price. A busy open house will also help with consumer confidence during quiet sale periods.

Of course don’t always assume you are being underquoted, but do be prepared for the property to go for a price toward the higher end or above the guide. To avoid disappointment on auction day there are a few things you can do.

  • Be realistic: Can you afford the higher end or above the price guide? If the bottom of the price guide is your maximum budget, it’s likely you will be outbid on auction day if there are multiple parties interested in the property.
  • Have the property valued: If you are really keen and believe you can afford the property have the property independently valued before going to auction. It’ll cost you about $500-700 but will save you the heartbreak of spending more than what the property is actually worth, or will let you know not to invest any more energy into a place that you really can’t afford. That being said often a property will be revalued at after auction sale price as the figure it sold for is an indication of it’s ‘market value’, but that doesn’t mean to bid too much over the pre-sale valuation. The bank will only lend you what the property is valued at, so unless you have quite a bit of spare cash to cover the difference….
  • Don’t let the price guide lull you into a fall sense of security. Be very clear about exactly what you can afford and don’t bid over what you’ve been conditionally approved to borrow. No matter how perfect the property might be, unless you are able to come up with the difference of course!
  • There are other longterm costs of owning property to consider as well as your weekly repayments. It can be tempting to think you can go above your ideal budget even if its just a bit of a stretch but don’t forget there are always other overheads than just your mortage. For every property you are interested in buying calculate the cost of strata (if applicable), council rates, water rates and I also recommend adding home and contents insurance costs to this too to give you a realistic weekly, fortnightly or monthly cost to own your new home. It will likely add between $80 to $180 to your weekly property costs on top of your mortgage repayments, you so may find you need to adjust what you should be borrowing in the first place.   

It's easy to feel downhearted if you are outbid on what you thought was the perfect place.  Chances are it wasn't the right property for you and it's still out there waiting for you.  

Alison Gallagher is a freelance writer, resourcefulness expert and entrepreneur. She has been featured in various publications including Stellar Magazine, Australian Health and Fitness Magazine, and Cleo Magazine. Alison is particularly passionate about sharing practical tips on how to live simply, sustainably and seasonally.