If you’ve ever been to any auction (not just a property auction), you’ll notice three main terms being used in order to display the pricing of a lot.
These three terms are Guide Price, Reserve Price and Sold Prices (also known as Hammer Price) and mean very different things. They are incredibly important for buyers to fully understand, in order for them to make better-informed decisions when bidding at auctions.
Auction pricing terminology
What does guide price mean?
A guide price is generally a term used to indicate the seller’s minimum expectation and is not to be mistaken as the likely value of the lot’s worth.
This allows potential buyers to predict where the opening price will be starting from, along with the region of what the seller’s reserve price may be. Some auctions may show a minimum and maximum price as a guide price, in order to better help indicate the lot’s expectations.
Buyers should note that the seller’s guide price could fluctuate prior to the days leading up to the auction. This means that buyers should keep an eye on guide prices more frequently, should they be used as part of a buyer’s bidding strategy.
What does reserve price mean?
A reserve price is a price that is agreed between the auctioneer and the seller, often privately. The reserve price is something that the auctioneer is authorised to sell at on the day of the auction, without having to reconsult the seller with.
Note, similar to how the guide price can change prior to the auction, the reserve price can also change too. Oftentimes, this can be relative to the guide, given that a 2014 ASA ruling stated that reserve prices must sit no more than 10% of the lot’s guide price.
With that all said, if the lot hasn’t had its reserve price disclosed (which is often the case at auction houses), buyers can very easily work out where the reserve may roughly be by looking at the guide price’s figure and using the 10% rule above.
What does the sold price mean (hammer price)?
The sold price, also known as the hammer price, is the price that the highest bid was last at — provided the bid met the lot’s reserve price.
Depending on the popularity of the lot, the guide price of a lot may be very different to what the actual sold price can achieve, as buyers may fall into a bidding war with each other, bumping the price higher due to the popularity of the lot.
Note that the sold price is not necessarily the actual price for what the buyer pays for the completion of their won lot, as additional charges are normally applied on top of these prices, separate from the price mentioned when the hammer falls.
These prices generally include legal expenses for transferring property titles, auction house commissions, etc. Therefore, it’s always best to do your own due diligence about what additional fees may apply, prior to proposing a bid for a lot.
This article is purely speculative and should not be mistaken for financial advice. Readers should consult a professional independently before making any financial decisions.