In most cases, properties sold at auction are marketed with attractive guide prices, discounted against the price an estate agent would set, referred to as “market value”. That’s because auction sellers are prepared to trade market value for the speed and certainty an auction sale delivers.
If you’re thinking of selling a property at auction, setting the right reserve price is a crucial step in attracting multiple buyers, generating competitive bidding and achieving the best result on auction day. There are several aspects that are taken into consideration for this process and it’s not as simple as just calculating a single price like a private treaty sale, as at auction there are two prices – guide and reserve. So, let’s delve into what these terms mean, how they are set, and how to navigate the process with confidence.
What is the difference between guide price and reserve price?
A reserve price should be agreed between seller and auctioneer at the point of instruction. The reserve is the minimum amount the property can be sold for at auction, in essence it’s a safety net ensuring the sale is economically viable for the seller. In most cases, the reserve price is not disclosed and the auctioneer markets the property with a guide price.
The guide price gives interested parties an indication of each seller’s minimum expectation / reserve, they are not necessarily figures which a property will sell for as competitive bidding may drive the eventual selling price higher. Network Auctions abide by the Advertising Standards Agency rules that state a reserve price must be no more than 10% higher than a single figure guide and where a guide price band is used, the reserve may not exceed the band.
How are the prices set?
An auction appraisal should include a detailed market analysis comparing a property’s location, size and condition to similar properties in the area that are currently listed or recently sold. The auctioneer will also consider the potential to add value through refurbishment or development, the cost of work and the potential profit investors factor in.
The role of the auctioneer when appraising a property is to ensure the reserve and guide prices create maximum response from potential bidders. If that price is in line with the seller’s expectations, they can proceed to auction. If not, the auctioneer should decline instructions because, if the reserve price is unrealistic, the published guide price will dilute serious interest and the property won’t sell.
Ultimately, accepting the advice of your auctioneer to set the reserve and guide prices ensures you approach the auction process with confidence and clarity, best placed to achieve a successful outcome on auction day.
