Guide price vs reserve price at property auctions

At a property auction the reserve is the seller's minimum price which is kept confidential and the guide price is the figure given to the public in order to attract bidders; the two are linked by an advertising rule which most bidders have never come across and that rule is the most useful point on this page.

What each figure means

The minimum price that the seller has agreed with the auctioneer is known as the reserve price; it must not be lower than this and is not made known either before or during the auction. The guide price is included in the catalogue in order to show where the reserve price is and to indicate at what point bidding should begin, and it is common for auctioneers to start bidding below the reserve in order to get the auction moving, a point which the advertising rules require them to make clear to the bidders.

The 10% rule

The guidance issued by the Advertising Standards Authority from 2014 states that a single-figure guide must be within 10% of the reserve and that a guide given in the form of a range must have the reserve contained within it. Therefore, if a lot is guided at £180,000 the reserve cannot exceed £198,000. This turns an indistinct marketing figure into a practical upper limit for your bidding budget.

Reading the guide as a buyer

The guide price is deliberately set low since its purpose is to fill the room. Calculate your own maximum based on the sale prices of similar properties rather than on the guide price, and keep in mind that the winning bid only secures the property if it reaches the reserve. If bidding stops below the reserve, the item is withdrawn, but sellers can and do negotiate with the highest bidder afterwards, so it's advisable to remain in the room.

There is one more signal that is worth keeping an eye on. Since the guide price and the reserve price must remain within 10% of each other, when the guide is reduced during the marketing period it usually indicates that the reserve has also dropped. A late reduction of the guide is the most clear-cut public sign that a seller wants to get out.

Even if you win the auction there are still pricing questions to deal with if you are taking out a mortgage. The mortgage lender will value the property on its own, and if the figure it arrives at is lower than your winning bid, you'll have to pay the difference or challenge the valuation by producing at least three recent comparable sales.

Guide prices outside the auction room

Estate agents will likewise put ordinary private sales with a guide price, primarily in order to start up a conversation rather than to indicate that an auction is taking place. The guide price is not tied to a reserve and you are free to make an offer based on what you think the property is worth. In the case of an unclear listing, it is necessary to check the property description and find out who the seller is, as agents usually state when a lot is going to be auctioned.

Setting both figures as a seller

Fix the reserve at the lowest amount you are willing to accept, taking into account the mortgage and all associated fees, and then allow the auctioneer to set the guide. In the case where you need £150,000 in order to leave the auction intact, a reserve of £150,000 would permit the guide to be as low as £135,000, since the guide can be set up to 10% below the reserve.

When the hammer drops, the sale becomes final; the buyer pays a 10% deposit on the day and typically completes the transaction within 28 days, as Zoopla's guide to buying at auction states. The most frequent reason for lots failing is having an over-ambitious reserve, and if your house has already remained unsold on the open market at a certain price, then that price should not be used as a reserve.

For more information on pricing methods when selling your house at auction, please see our separate article. Since both auction purchases and sales are subject to four-week legal deadlines, it is advisable to arrange a conveyancer by comparing several quick quotes before the auction takes place.