When is a guide price really a guide to the minimum amount that a vendor will accept at auction?
The answer means going beyond what the rules require to provide transparency for bidders.
Last month I received notification of a guide price alteration to a lot going to auction with another firm of auctioneers. All well and good, as RICS Guidance Notes recommend that where a reserve is altered after marketing has commenced, a revised guide price should be issued. What struck me, however, was that the guide price had been revised from “£1,500,000-£1,600,000” to “£1,500,000+”.
To a layman interested in bidding, it would appear that the guide price and corresponding reserve price had been reduced. But to those familiar with the latest comments from the Advertising Standards Authority, the more likely scenario was that the reserve price had, in fact, increased from £1,600,000 to £1,650,000 as – according to the definitions provided by most auctioneers – where a guide price is set as a range, the reserve will fall within that range, whereas when a guide price is followed by a “+” the reserve price may exceed the figure by up to 10%.
One of the most common conversations auctioneers have with vendors revolves around how low they are able to set their guide while having their reserve as high as possible.
We are routinely approached by sellers requesting a guide price of £300,000 and a reserve price of £350,000 or similar. Why? Quite simply, vendors want to entice people into the auction room with the promise of a cheap purchase and hope that once they are there the bidder will keep on bidding until the reserve is met.
This attitude was even ratified to a certain extent by the Advertising Standards Authority’s latest edict that where a single guide price is published it should be “within 10% of the minimum acceptable sale price”.
In their opinion, it is perfectly acceptable to print a guide price of £500,000 as an auctioneer if your vendor has advised you that they will not sell for a penny less than £550,000 and this is a model adopted by many auctioneers.
My personal opinion has always been, and remains strongly, that it cannot be right to quote as a guide price a figure at which you know there is no way the property could ever be bought as this is being done with the sole purpose of misleading people. Whether this is allowed by the ASA, the RICS or any other regulatory body, it simply does not sit comfortably for me in an industry that often sells itself on its very transparency.
It is a desire for transparency that was at the heart of our decision some years ago that wherever possible we would avoid quoting a guide price and simply state a “reserve below”. This simple device lets anyone interested in the property know that if they are prepared to pay the figure quoted, then – in the absence of a higher bidder – the vendor is prepared to sell to them.
As with a guide price the final sale figure may, and often does, substantially exceed the figure quoted but the minimum amount acceptable to the vendor is made clear. This was most notably demonstrated by our sale of Gwalior House in Southgate in May when a quoted “reserve below £8,000,000” did not stop the eventual bidding reaching £13,750,000.
We are not perfect and would never claim to be. Every auction we may have a handful of vendors who refuse to agree to disclose their reserve either because they disagree with the principle or because they don’t wish to absolutely lock themselves into the reserve price so far in advance of the auction.
Overall though, our system works and is appreciated by vendors and potential purchasers alike.
John Barnett is chairman of Barnett Ross
