REIV Provides Misleading Auction Advice

Posted on May 9, 2010 by | 11 Comments

Peter Mericka B.A., LL.B OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd


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Consumer AlaertIn his regular propaganda column in the Domain section of The Age newspaper, the CEO of the Real Estate Institute of Victoria (REIV), Enzo Raimondo, pretends to inform consumers about the auction myth. Asking the question, “Is it sold after the hammer falls?” Raimondo casts the question as one relating only to the right of the vendor to sell or not to sell after the fall of the hammer. He is very careful not to alert purchasers to the fact that they too can expose the auction as a nonsense by refusing to sign the contract after the hammer falls.


 


Real estate is NEVER sold at auction


The first point to be made about real estate auctions is that they are not true auctions. When the auctioneer yells “Sold”, and hits his hand with the rolled up unsigned contract, he is telling a lie. There is no enforceable sale at that point, and either party can simply turn on their heel and walk away.


Enzo Raimondo - CEO of the REIVSure, there is silly legislation that says that a real estate agent cannot accept further bids after the auction, but this does stop a vendor from ignoring the auction result and selling to someone else who offers a higher price.


Raimondo is careful to ignore the fact that some vendors will not be pushed into a sale on terms that are not acceptable to them. He observes,


“The vendor may have decided they don’t want to move after all, or they would like a longer settlement than that offered in the contract, or they are unable to agree on terms with the highest bidder.” (Enzo Raimondo, Domain, the Age, Saturday 8 May, 2010 p.3)


Sure, these are reasons why a vendor may not want to sign the contract after the auction is over. But there is a much better reason why the vendor may not want to sign. It is possible that after the auction another purchaser has offered the vendor more for the property.


 


When a new bidder offers more


What is a vendor to do when the auctioneer has hit his hand with the unsigned contract, and shouted “Sold” at the highest bidder, only to hear someone else call out, “Wait a minute, I’ll pay another $10,000.”


As Raimondo points out,


“The laws in Victoria sensibly prevent an auctioneer taking any bids once the property has been knocked down to the highest bidder but they do not compel a vendor to sell.”


In other words, the law is a nonsense, and its only real function is to encourage real estate agents to deceive their own clients.


 


Estate agents encouraged to deceive vendors


The real estate agent is not allowed to take any more bids, but the vendor can. This silly law simply encourages real estate agents to mislead their vendor client into believing that no further bids or offers can be entertained. For this law to work, the real estate agent must ensure that the vendor remains unaware that further bids and offers can be dealt with.


In most cases the real estate agent will attempt to ensure that the property is sold for the lower auction price to the successful bidder, and may even falsely advise the vendor to ignore the late-comer. This will save the integrity of the auction, and will save the real estate agent from embarrassment, but it is not in the vendor’s best interests.


The vendor is entitled to trash the auction, ignore the highest bidder, and to sell the property to the late-comer with the deeper pockets.


 


Purchasers can also refuse to buy


Raimondo’s article was very careful to avoid letting on that purchasers are just as entitled as vendors to refuse to sign a contract after the auction has finished.


A purchaser who has second thoughts about buying can, at any time prior to signing the contract, simply walk away. Consider this scenario:



The successful bidder begins to walk to towards the auctioneer with a view to signing the contract. As he does so, someone from the crowd calls out, “You didn’t mention the asbestos problem, you didn’t tell these people that they can’t fix it and that’s why they’re selling.” The purchaser, having heard this, asks the auctioneer about it, and the auctioneer informs the purchaser that there was never any obligation on the part of the vendor to disclose the fact that the property is full of unstable asbestos. The purchaser refuses to sign the contract, gets into his car, and drives off.


What can the real estate agent do in such circumstances? Nothing. However, not all real estate agents will simply allow the purchaser to walk away. Consider following account of an estate agent who was not prepared to see his auction spoilt.


Tim Fletcher - Executive Chairman Fletchers GroupTim Fletcher is one of Melbourne’s best known real estate agents. He was regularly heard on Melbourne radio (until he was recently dumped), and he regularly preens himself on tabloid television as a real estate expert.


In an article in Melbourne’s Herald Sun newspaper, Tim Fletcher is quoted as follows,



“We had this case of a fellow making an opening bid and it was well above what anyone was thinking – about $100,000 over. He was buying for his pregnant daughter. I sold the place to him but he started yelling and carrying on saying, “I’m not paying. I’m not buying it.”


I chased him and his daughter up the street and she almost had the baby. She was a week off and I was afraid it was going to arrive.


She was in tears. The man had realised he’d made a terrible mistake and should have gone along with the flow rather than trump everyone with a big bid.


I said to him, ‘You bought the property’ and I threatened to get the police.


In the end he came in and signed up but it took three quarters of an hour.”


Disgusted by this account, I wrote to Tim Fletcher and asked him to answer a few questions. A letter from Maddocks Lawyers, on Fletcher’s behalf, threatened a defamation action, stating, “The newspaper article upon which your statements are purportedly based was not itself correct.” However, a follow up letter in which I sought elaboration on this was politely ignored. I am not aware of any legal action having been taken by Fletcher against the Herald Sun newspaper or the journalist who wrote the article in which Fletcher was quoted.


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11 Comments

  • http:// says:

    Loved reading about that scummbag Tim Fletcher bragging about chasing a bidder up the street and upsetting the pregnant daughter becuase he just does not get it that he was behaviung like an animal to do that. My advice to anyone thinking of buying or selling thru this jerk is DONT.

  • Hi Angry,

    I find reference to the police interesting. I wonder what the police were supposed to do with a purchaser who was not required by law in any way to sign a contract or to proceed with the purchase.

    Having been a policeman myself, I know that the police would not have been at all interested in such a matter.

  • http:// says:

    Under NSW law it states

    h) As soon as practicable after the fall of the hammer the purchaser is to sign the agreement (if any) for sale.

    You will notice it doesn’t state “MUST” and when it comes to the agreement it only states ( if any) for sale.

    I believe a threat can also be classed as duress, it has to be made in such a way, that it “deflects” the exercise of the recipient’s free will; it must be such as to cause a reasonable person to give in to it.

    I would be interested to learn what comes of this.

    cheers

  • Hi George,

    There is no requirement whatsoever in Victoria for a purchaser to sign a contract. And if there was, such a rule would have to stipulate what form of contract could be used, whether changes could be made etc.

    When you say that you’d be interested to learn what comes of this, if you’re talking about the behaviour described in the Herald Sun article, you needn’t hold your breath. That article was written some time ago, and it didn’t give rise to any outrage at all. I think the real estate industry and the community accepted it as normal behaviour – really, would any real estate agent tell such a story to a journalist unless he was supremely confident that no-one cares about such behaviour?

  • http:// says:

    Hi Peter,

    This also confirms why public reguation is deemed to be no longer able to solve some of these problems at a government level.

    They simply do nothing, even when it is blatently obvious.

  • http:// says:

    Readers should be aware that Peter’s remarks may be applicable in Victoria, but they may not apply to the rest of Australia:

    https://www.reic.com.au/blogs/australian_real_estate_blog/archive/2007/04/28/winning-auction-bidders-beware.aspx

  • http:// says:

    i didn’t know that although i did a real estate rep course few months ago, and this piece of informtion is not mentioned any where? so Thanks Peter for informing us

  • http:// says:

    Apparently the legal definition of a memorandum is a short written statement outlining the terms of an agreement, transaction, or contract.

    Under the PSBA Regulations 2003 -The NSW auction conditions, generally refers to the bidding process on the day, not terms of an agreement – there is nothing in respect to the auctioneer having authority to sign (the agreement) on behalf of a winning bidder either.

    Maybe our law makers new, that real estate auctions could never operate inline with bank policies – If we conceal this material fact inorder to induce a sale contract, we then give the buyer an open invitation to sue for damages, in the event they become restrained from completing the contract.

    Allow for both conditional and unconditional bidding on the day and commonsence will prevail.

  • http:// says:

    Hi George,I have been an Auctioneer for over 20 years(as you know).
    Maybe I am to simple,but to my mind the conditions of sale by Auction are VERY clear and very defined,lets have a look at a few of them and tell me how they can be misunderstood.
    (1)c The highest bidder IS the purchaser,subject to any reserve price(pretty straight forward)
    (g) A bid cannot be made or accepted after the fall of the hammer.
    Again i ask you where is the problem it seems all clear to me!
    look forward to your thoughts
    john

  • http:// says:

    I’m doing  a real estate course at T.A.F.E here in GoldCoast  and this piece of informtion is not mentioned any where in the course books.

    Thanks to Peter Mericka for such valuble infomation .

    Paul

  • http:// says:

    Hi John,

    Great to see you on this blog brother.

    In response to your comment, those conditions have nothing to do with the terms and conditions of a contract for sale of land and you having the authority to sign on the buyer’s behalf.

    Our auctions conditions in NSW, doesn’t state either, at the fall of the hammer is the forming of a legally binding contract.

    Those conditions only pertain to the bidding process and conduct leading up to the fall of the hammer and nothing more.

    Those conditions mentioned, don’t state the bids have to be unconditional- A bid can also be conditional.

    I should also mention that after the fall of the hammer, if the winning bidder is restrained from signing the contract ( under auction conditions)due the banks valuation falling short and then needing time to comeup with the short fall inorder to secure their finance, the contract of sale should then be entered into under private treaty conditions.

    The property should remain on the market until the agreement becomes unconditional and legally binding.

    Can I suggest also, that you read the essential ingredients of a contract and then call me to discuss further.

    http://www.innovation.gov.au/General/OSB-MarketsSection/Pages/WorkingwithContractsTheessentialingredientsofacontract.aspx

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