Introduction
When deciding how to sell your commercial property at auction, one of the most important steps is setting the pricing strategy. Two key figures are used in the auction process — the guide price and the reserve price. Understanding how these work, and how they influence buyer behaviour, is essential to achieving the best outcome from your sale.
Setting the Guide and Reserve Price When Selling a Commercial Property by Auction
When you instruct an auctioneer, they will usually provide a valuation based on their experience, comparable sales evidence, investor demand and current market conditions. From this assessment, they will recommend both a guide price and a reserve price.
Although the auctioneer provides advice, the final decision rests with you as the seller. It is important to understand the purpose of each price and how they interact.
1. Reserve price
The reserve price is the minimum amount you are prepared to accept for your commercial property. If bidding does not reach this figure, the property will not be sold at auction.
Key points about the reserve price include:
- It is confidential between you and the auctioneer
- It is not disclosed to bidders
- It must be agreed before the auction begins
- It legally protects you from selling below your acceptable level
Auctioneers are skilled at encouraging bidding activity, but there is always a possibility that bidding will fall short. If this happens, the lot will remain unsold.
Setting the reserve too high can reduce the likelihood of a successful sale. Buyers may lose confidence if they sense unrealistic expectations, particularly if bidding stalls significantly below the reserve.
Even if the property does not sell, you will normally still be responsible for:
- The auction entry fee
- Marketing costs
- Legal preparation costs
For this reason, reserve prices should be based on realistic market evidence rather than aspirational figures.
2. Selling without a reserve
In some circumstances, properties are offered without reserve (sometimes described as unconditional sales).
This approach can generate strong interest because buyers know the property will definitely sell. However, it carries risk for the seller if bidding competition is weak.
No-reserve auctions are most commonly used where:
- The seller requires certainty of sale
- The property forms part of a deceased estate
- A lender or receiver is selling
- There are time pressures
- the property requires disposal regardless of price
An experienced auctioneer will advise whether this strategy is appropriate for your situation.
3. Guide price
The guide price is the figure published in the auction catalogue and marketing materials. It acts as an indication of the expected sale range and is used primarily to attract buyer interest.
Importantly, the guide price is not the same as the reserve price.
The guide price is a marketing tool designed to:
- Encourage bidder engagement
- Create competition
- Generate viewing activity
- Attract investors searching within price brackets
Auctioneers often set guide prices strategically below anticipated market value to stimulate interest. A competitive guide price can lead to multiple bidders, which may ultimately drive the final price higher than expected.
Under UK auction guidelines, the guide price is usually set within a reasonable range of the reserve price. Many auctioneers follow internal rules that the guide should not be significantly below the reserve without justification.
4. Adjusting the guide price before auction
During the marketing period — typically three to four weeks — the auctioneer will monitor buyer interest.
This includes:
- Number of enquiries
- Viewing levels
- Legal pack downloads
- Investor feedback
- Offers made prior to auction
If demand is stronger or weaker than expected, the auctioneer may recommend revising the guide price before auction day.
Adjusting the guide price is common and can help maintain momentum and buyer confidence.
5. Factors that influence pricing decisions
Several factors will affect the appropriate guide and reserve pricing strategy, including:
- Location and local demand
- Property condition
- Investment yield or rental income
- Lease strength and tenant quality
- Development potential
- Planning position
- Market cycle and interest rates
- Comparable auction results
- Buyer sentiment at the time of sale
A good auctioneer combines market data with practical experience to recommend the most effective pricing approach.
6. Pre-Auction offers and pricing strategy
If strong interest is generated during marketing, buyers may submit offers before the auction date. This can influence both guide and reserve pricing.
You may choose to:
- Accept a strong pre-auction offer
- Reject the offer and continue to auction
- Increase the reserve price
- Adjust the guide price upward
The correct decision depends on the level of interest and your appetite for risk.
Summary
The reserve price is the confidential minimum you are willing to accept, while the guide price is a public marketing figure designed to attract bidders. Both must be set carefully to balance buyer interest with seller protection.
A realistic reserve and a well-judged guide price can create competitive bidding and maximise the final sale price. Conversely, unrealistic pricing may result in the property remaining unsold and additional costs being incurred.
Working closely with an experienced auctioneer and remaining flexible during the marketing period will significantly improve your chances of achieving a successful auction outcome.