CLARIFYING AUCTION GUIDE PRICES
29th July 2014
Following a recent ruling by the Advertising Standards Authority the RICS have called for auctioneers to ensure that the word "Guide price" is clearly defined in all printed and on line marketing material.
This in my opinion is not before time and the whole issue of guide prices and reserves has occupied considerable time in debate at various conferences and meetings I have participated in over the last few years.
So what's all the fuss about?
Guide prices should not be misleading and should not be deliberately set at an artificially low level to generate interest before a much high reserve is adopted on the day of the sale.
The ASA refer to this as 'baiting' and is an offence under the Consumer Protection Regulations 2008. I fully agree that this is bad practice especially if a prospective purchaser has paid for a survey or legal advise before attending the auction in anticipation of buying at a guide price that is set below the vendors reserve expectations – essentially the purchaser never could buy at that price. I often see auctioneers results where it says 'unsold but available at £x which is a figure considerably higher than the original guide and such auctioneers are sailing close to the wind in light of this ruling
Yes sellers do change their mind especially in light of considerable pre auction interest and maybe a high 'fishing offer' but it is up to the auctioneer to communicate this to potential buyers by increasing (and decreasing in some cases) the guide price. Times have changed and with legal packs on line and other technology available to auctioneers there is no excuse. At the very least guide price changes should be put on the addendum and announced at the sale room.
My definition of a guide price is "The initial anticipated level of the reserve' but the RICS have suggested member practices extend this to read
Guide Price: An indication of the seller's current minimum acceptable price at auction. The guide price or range of guide prices is given to assist consumers in deciding whether or not to pursue a purchase. It is usual, but not always the case, that a provisional reserve range is agreed between the seller and auctioneer at the start of marketing. As the reserve is not fixed at this stage and can be adjusted by the seller at any time up to the day of the auction in the light of interest shown during the marketing period, a guide price is issued. This guide price can 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. A guide price is different to a reserve (see below). Both the guide price and the reserve price can be subject to change up to and including the day of the auction.
Reserve Price: This is the seller's minimum acceptable price at auction and the figure below which the auctioneer cannot sell. The reserve price is not disclosed and remains confidential between the seller and the auctioneer. Both the guide price and the reserve price can be subject to change up to and including the day of the auction.
The aim of the RICS is to ensure that potential purchasers and in particular first time auction buyers have confidence in the auction process. There are fantastic opportunities in auction catalogues up and down the country each month and in many cases guides and reserves are set at figures that are low to ensure that the property sells resulting in the chance of a genuine 'bargain'
Adrian Little is a partner and principal auctioneer for Mark Jenkinson and son with over thirty years of selling by auction in Sheffield. He has also been a member since 2000 of the RICS auction committee in London - a group set up to direct best auction practice throughout member firms in the UK