Guide Prices and Reserves — what buyers and sellers think.

There has been much debate amongst property auctioneers about how reserve prices should be set in relation to guide prices. We thought we’d ask a few buyers and sellers what they think about it.

The current rules
Common Auction Conditions

The Royal Institute of Chartered Surveyors (RICS) have, in their guidance to auctioneers made clear that:

“Price guides are a key tool of communication to the buyer of the seller’s intention to sell and are a key consideration when interested parties decide to pursue a purchase.”

The RICS Common Auction Conditions, being the terms under which most properties are sold by auction, make specific reference to guide prices and reserves. Clause A3.6 states that:

“Where a guide price (or range of prices) is given that guide is the minimum price at which, or range of prices within which, the SELLER might be prepared to sell at the date of the guide price. But guide prices may change. The last published guide price will normally be at or above any reserve price, but not always — as the SELLER may fix the final reserve price just before bidding commences.”

ASA Ruling

In 2014, a buyer, who realised that several properties at auction had a reserve price that was set higher than their guide price, meaning that they could not be bought at the stated guide price, submitted a complaint to the Advertising Standards Agency, challenging whether the listed guide prices were misleading.

Amongst other things, the ASA’s response was as follows:

“Unless the auctioneer routinely updates the guide price whenever a reserve is set that is higher than the guide price or the lower bound of the guide price range, the explanatory text must also include:
— An explanation that the guide price is an indication of the range within which or, in the case of single figure guide prices, within ten percent of which, the minimum sale price will fall.”

The results

We asked buyers and sellers what they thought the reserve price should be in three scenarios:

1) Where the guide price is a range

RICS Guidance: Where a guide price is a range, the reserve should fall within the range — “but not always”.

ASA Ruling: Where a guide price is a range, the reserve should fall within the range.

Our survey results: 39% of those surveyed agree with the ASA and think that where a guide price is a range, the reserve should fall within the range. Only 17% of those surveyed think that the reserve should be either at the top end or higher than the top end of the range.

2) Where the guide is a single figure (no plus)

RICS Guidance: Where a guide price is a single figure, the reserve is normally the guide price or just below the guide price — “but not always”.

ASA ruling: Where a guide price is a single figure, the reserve should be within 10% of that guide price.

Our survey results: 73% of those surveyed disagree with the ASA ruling and believe that where a guide is a single figure (with no +), the reserve should be that single figure or below that single figure. This is in line with the RICS Guidance.

3) Where the guide is a single figure with a plus

RICS Guidance: Where a guide price is a single figure, the reserve is normally the guide price or just below the guide price — “but not always”.

ASA ruling: Where a guide price is a single figure, the reserve should be within 10% of that guide price.

Our survey results: 69% of those surveyed disagree with the ASA ruling and believe that where a guide is a single figure marked with a “+”, the reserve should still be that single figure or below that single figure. This seems to demonstrate that the “+” symbol bears little or no relevance to where consumers believe the reserve price should be set.

The consequences?

Although the ASA ruling must be applied by all auction houses, it is in fact bespoke to one particular case. The evidence gathered was from one particular auction house and appears not to take into consideration evidence of the general consumer.

It is important to note that the ASA ruling is a minimum requirement. Some auction houses have ignored the ASA ruling and have gone above and beyond — one auction house in London publishes their reserve prices and another often state for individual properties that “reserves are not to exceed £x”. These are both far more transparent than an asterisk and some small print at the bottom of a catalogue or webpage (there doesn’t even have to be a link to the small print from the asterisk!).

The RICS guidance already broadly reflects the thinking of the consumer. All that is needed is to remove the words “but not always” from the guidance, and much more certainty is created.

What about the Consumer Protection Regulations?

The ASA ruling does not take into consideration the impact of the Consumer Protection from Unfair Trading Regulations 2008, . The regulations generally ban unfair commercial practices — an “unfair” practice being one that both:

• falls below the good-faith standards of skill and care that a trader in that industry would be expected to exercise towards customers, and
• affects, or is likely to affect, consumers’ ability to make an informed decision about whether to purchase a particular product

(as summarised by Which.co.uk).

The regulations also ban bait advertising, which is defined as: “Making an invitation to purchase products at a specified price without disclosing the existence of any reasonable grounds the trader may have for believing that he will not be able to offer for supply, or to procure another trader to supply, those products or equivalent products at that price for a period that is, and in quantities that are, reasonable having regard to the product, the scale of advertising of the product and the price offered (bait advertising).

It’s open to debate how this sits within the framework of the ASA ruling and guide prices, but there is a school of thought that suggests that reserves ought to be no higher than the lowest figure published.

Transparency is paramount

Transparency is at the heart of what we are seeking to achieve at Bamboo Auctions. It is only with transparency can the auction market increase it’s market share and encourage new vendors to sell by auction. As a provider of online property auctions, we are driving consumer awareness of auctions through technology; however we are not able to change how properties are priced without the input and unilateral agreement of our auction house partners.

Transparency over pricing is an absolute fundamental that ensures the faith of the consumers in our processes. We hope that in producing this survey, we can better inform auctioneers about what their customers are thinking, as well as help to ensure that auctioneering in the future is not just technologically relevant, but remains trusted, reputable and professional.

Bamboo Auctions provides technology to auction houses, to encourage the use of auctions. Buyers and sellers can exchange online, immediately at the end of a specified time period. For more information or to arrange an online demonstration call 0330 088 9659 or email hello@bambooauctions.com