Auction guide prices - Everything you need to know
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Auction guide prices - Everything you need to know

The main beneits of buying or selling a property at auction is the speed and certainty of the sales process, though there still exists an

uncertainty amongst many bidders of what the auction guide price actually means.

The pricing structure for auction properties is quite different to those set by estate agents. Estate agents usually quote an asking price and auctioneers usually quote a ‘guide price’ or a ‘guide price range’. The key difference is that a vendor selling through an Estate Agent is likely to accept an over on the property at the asking price and sell the property, at auction the bidding may go well above the guide and reserve before being sold to the highest bidder.

Auction pricing terms

When searching for properties to buy at auction there are 3 different types of pricing that you are likely to come across.

1. The guide price

2. Reserve price

3. Sold prices

Understanding the key differences between these pricing terms and how they relate to each another is an important part of buying successfully at auction. Now, let's go through each pricing term individually to clarify what you need to know.

1. The guide price

The guide price is generally the first price you will see as every property that is offered for sale at auction usually has an associated guide price attached to the lot. Simply put, the guide price is an indication of where the reserve price is currently set. Be aware that the guide price is certainly not guiding you towards the likely value the property may sell for at the auction. Guides are provided as an indication of each seller’s minimum expectation which also may change at any time prior to the auction. So remember, it is not a valuation as it is only giving you an indication of what the property could potentially sell for if there was to be limited interest and competition at the auction.

A guide price can also be shown in the form of a minimum and maximum price range within which an acceptable sale price (reserve) would fall, or as a single price figure within 10% of which the minimum acceptable price (reserve) would fall. Understanding what the Guide Price means when looking to buy or sell at auction in relation to calculating the market value of a property and working out your maximum bid is key to setting a successful bidding strategy.

Occasionally lot details may not have a guide price and can show the guide price as ‘Refer’, ‘Awaiting’ or ‘No Guide’. This is more likely to happen in the early stages of the marketing process when the auctioneer is still determining the reserve price, this will usually be updated prior to the auction date.

2. Reserve price

The reserve price is agreed between the vendor and the Auctioneer at the start of the marketing period for the property going to auction. The reserve is the price at which the Auctioneer is authorised by the vendor to sell the property on auction day, below this price the auctioneer cannot sell. The reserve price is also subject to change throughout the marketing period depending on the interest in the lot, as the lower the reserve and hence lower the guide price the more interest there will be in a lot. It is essential therefore not to rely on the guide price as an indication as to what the property could sell for, merely as to where the reserve is going to be set.

Since a ruling in 2014 by the ASA auctioneers have to define the guide and reserve. Where the guide price is a range of figures (for example £100,000 to £110,000) then the reserve must sit within that range, and where the guide is a single figure (for example £100,000 or £100,000 +) then the reserve must be within 10% of that figure.

The reserve price is usually set at a level that achieves a balance between being set low enough to encourage buyers to see the guide price as an opportunity to get a good deal on a property thus encouraging greater interest in the lot, whilst also not being set too low as to undersell the property if there is limited bidding interest on the day.

There is a balancing act to set the right Guide Price for an Auction Property as when selling at auction a vendor is hoping to get the highest price possible and to achieve that an Auctioneer is looking to generate as must interest as possible by advertising the property with a favourable guide price that appeals to a wide audience of potential buyers.

Now you know what the guide price means this knowledge can be used to work out the likely price range that the reserve price sits within. The reserve price is generally not disclosed prior to the auction and the auctioneer may start the bidding well below this value but if bidding does not reach or pass the point of reserve then the property will go unsold. Unsold properties may be advertised post-auction available at or above the reserve price that was previously unpublished or they may just say refer to Auctioneer when they would discuss what an acceptable offer maybe with you in person.

3. Sold Prices

The sold price, sale price or purchase price is the value of the highest bid when the hammer falls on the auction rostrum. This does not include any of the required fees related to purchasing the property though. The difference between the guide price versus the selling price can be marginal or significant as it depends on the popularity of the property at the time of the auction where so many different factors come into play. Also, all the associated costs and fees need to be added to the sold price to reflect the true cost.

Sold prices can also be useful as part of doing the necessary due diligence when looking to buy a property at auction. Sold prices can be used for doing comparable research when calculating the likely market value of a similar property going to auction. However, if a lot is sold outside of the auction, either sold prior or sold post the sale price may not be disclosed by the auctioneer.