Price guides can be a confusing and misleading number for buyers. It helps if you understand what a price guide is based on and then how you can use it.

How does the selling agent come up with a price guide?

When the selling agent is confirmed by the vendor to hold the listing, the agent will look at similar properties in the area that have recently settled (note: settled is usually 6 weeks after the auction/sold date). Other properties may be in better condition, worse condition, on the same street, around the corner on the main road, have the same number of bedrooms, more or less, may have parking, may not - all items which will impact a selling price.

The agent then takes this data and sets a 'price guide' which roughly reflects the combination of where this current property is better or worse value. The agent will always err on the lower side though as they are using the price guide to drive interest in the property and get people through to see the home.

Is the price guide reflective of the current market?

Property markets are constantly changing, and can change in as little as 1-2 weeks so rarely does a 'price guide' actually reflect the current conditions. As outlined above, the properties the selling agent used have been sold 2-3 months earlier (sometimes up to 6 months if there is low turnover). Plus, the 'price guide' is set at the start of the selling campaign, so by the time you are viewing the property, it may be 3-4 months since other similar properties were sold.

What does the 'price guide' tell me then?

Unofficially, it can tell you a couple of important things:

The 'price guide' will almost certainly be lower than the reserve price on auction day e.g. In Sydney, a property with a price guide of $1.2m, would generally have an auction reserve price of $1.3m or even up to $1.4m. (Note: there is no obligation on the price guide and the auction reserve price to be the same)
The vendor is unlikely to accept an offer below the price guide, so if you have a maximum budget of $1.2m and the price guide is $1.3m, it is probably not worth your time to go and view the property.

And just like death and taxes are two guarantees in life, in the Sydney property market - rarely does a quality home sell for the 'price guide'.