While all property auctioneers, the vast majority of real estate agents and most newspaper property reporters sing the praises and extol the virtues of auctions for buyers and sellers alike, there are a few of us out here in real estate and conveyancing land who have our doubts. Fellow consumer advocate Neil Jenman has long argued that auctions get lower prices.
Real estate trainer Gary Pittard recently demonstrated how it is impossible to guarantee the highest price at auction. Buyers’ Agent David Morrell has predicted that the real estate auction will become a last resort and come to be seen as the vehicle of the desperate.
For many years I called for law reform to ensure “honest auctions”, and have regularly warned about the pitfalls for auction buyers and sellers.
Real estate lawyer Peter Mericka has, of course, been a constant comrade-in-arms in the struggle to expose the unsavoury truths of auction marketing and selling which rarely come to light in the print media’s so-called reporting on auctions.
Underquoting by agents is, of course, a perennial matter of concern:
And I suspect the deceit of dummy bidding remains alive and active across the nation, despite the efforts of the legislators and regulators.
This month, for the first time in an awful long time, I read a brutally honest newspaper report of a failed auction on what the press and NSW auction industry called “Super Saturday. Anita Balalovski wrote in the Domain section of the Sun Herald on 10th November about an auction of a three-bedroom, one bathroom corner block semi on a 214 square-metre block in Sydney’s Bondi. The headline may have been “Vendors suffer backlash over price hype”, but much more could be learned from the body of the article.
The sellers, allegedly “excited by local market buzz”, apparently increased their reserve price by $150,000 earlier in the week to what was described as an “ambitious” figure of $1,275,000.
On the other hand most prospective buyers did not front for the auction because they were allegedly “scared by the market buzz” and in apparent “fear of exorbitant prices”. Only four parties registered, but not one made a bid. The property was passed in on a $1.1 million “vendor bid”. Some would say vendor bids are the same as dummy bids.
Ms Balalovski reported that this “offer” was raised to $1.2 million in post-auction negotiations but “the vendors rejected the figure”. Go figure!
True Property agent Braden Walters said, according to the report, that after 75 group inspections and 14 contracts issued, he expected up to 10 registrations but some potential buyers didn’t show up because they didn’t want to get disappointed at yet another auction they couldn’t afford: “The vendors heard about how strong the Bondi market [is] and set the reserve too high, their expectations rose $150,000 in two days…Buyers now prefer to buy prior to auction to avoid getting sucked into a bidding vortex that spirals out of control; they are even putting notes in the owner’s letter box to get a deal earlier…There is still a lack of stock in Bondi but local buyers are re-evaluating the current hot market, they are pulling on their spending reins not wanting to get caught up in the hype.”
Ms Balalovski further reported that Mr Walters said that more than just the four registered parties became involved in a “second phase of post-auction bidding”. He said, she wrote, that it raised $100,000 more than the auction result but doubted it would reach the reserve.
Her article continued by describing what happed in essence:
“Auctioneer Ricky Briggs from Cooley Auctions had a crowd of 50 when he asked for an opening offer. There was a long pause before Mr Briggs put in a vendor’s bid of $1.1 million. He called it three times before suggesting an increase of $10,000.
Registered bidders were shaking their heads. After a few more minutes of silence and agents speaking with registered parties, one would-be bidder tried to put in an increased bid of $5000 but it was rejected by Mr Briggs, who said he was only prepared to take a minimum $10,000 rise.
Another potential buyer asked if the reserve was met and Mr Briggs said no, and was forced to pass in the property.”
One agent who only occasionally suggests auctions for his clients made this comment on the conduct of this auction: “I am always amazed how auctioneers will reject a increased bid of ‘$5000′ and only accept a’$10,000’ increase. In private treaty negotiations we are happy for any increase to keep the momentum going.”
Real estate trainer and consumer advocate George Rousos did not mince his words: “This stuff makes my blood boil! Agents and vendors setting high reserve prices without having any tangible evidence to show is totally unacceptable. It’s the auctioneers job to create serious bidding on the day once the reserve price is met. The reserve price has to be set in accordance to current market price conditions, otherwise you stuff the entire auction campaign! People should be suing for these unethical hikes in price caused by the agent and vendor. Buyers spend too much time and money giving themselves the best opportunity to secure a property, only to end up in tears and disappointment due to misleading behaviour.”