Auctions are fast paced and can be stressful for those involved. It’s important to understand your role and obligations as a licensee.
Disciplinary Tribunal decision on pre-auction offers
A 2016 Disciplinary Tribunal considered the impact of a purchaser signing a pre-auction offer.
The purchaser of a property for sale by auction signed a pre-auction offer, which was accepted by the vendor and restricted him from withdrawing the offer for a set period. The purchaser subsequently attempted to withdraw his offer, but this was refused by the agency. The auction for the property was brought forward, and the purchaser’s offer was used as the opening bid. There were no other bids on the property, and the property was sold to the purchaser.
The Tribunal found that the licensee and the agency had not given a proper explanation to the appellant of the meaning and implications of the pre-auction offer process and the form he was required to sign. The hearing found that two rules were breached: rule 9.7 (as to obtaining legal advice) and rule 9.8 (which provides that a licensee must not take advantage of a customer’s inability to understand relevant legal documents).
Sections 36ZA and 36ZE of the Fair Trading Act 1986 state:
36ZA Start and end of auction
(1) An auction starts when the auctioneer invites the first bid from potential participants.
(2) An auction ends when the auctioneer makes it clear that bidding is closed.
36ZE Bids may be withdrawn until end of auction. Any bid at an auction may be withdrawn before the end of the auction.
After reviewing the pre-auction offer form, the Tribunal found that it was “at least arguable that if a pre-auction offer has been announced as the ‘opening bid’ at the auction, it may be withdrawn at any time before completion of the auction”. The uncertainty of the law on this point heightens the need for licensees to carefully explain the pre-auction offer process and the pre-auction offer form to vendors and prospective buyers.
The explanation should be detailed and tailored to the buyer’s circumstances. If you are facilitating a pre-auction offer, you must deal fairly with all parties to a transaction and must not mislead or withhold information from them. You should also ensure that prospective buyers obtain their own legal advice before they make a pre-auction offer.
When are vendor bids allowed?
Vendor bids may be made when all three of the following conditions are met:
- The property at auction has a reserve price.
- The reserve price has not been reached.
- The bid is clearly identified by the auctioneer as a vendor bid.
Bidding that's not allowed
- Dummy or shill bids — these are bids made by people who appear to be genuine bidders but are in fact bidding on behalf of the vendor to persuade genuine bidders to raise their bid. Dummy or shill bids are illegal.
- Vendor bidding at or over the reserve price — The auctioneer (or anyone else acting for the vendor) cannot make a vendor bid at or over the reserve price.
- Not identifying who is making the vendor bid —if the vendor, their agent, or anyone else makes a vendor bid, they must clearly identify themselves.
To avoid any confusion, the auctioneer should say ‘This is a vendor bid’, rather than using industry jargon such as ’The bid is with me’ or other language that may not be understood.
If the property is not sold during an auction, a vendor bid cannot later be referred to as the amount at which the property was ‘passed in’. The only amounts allowed to be quoted are bids from genuine prospective buyers.