Ben Piper
How Accurate are Agents’ Estimated Prices ?
In my book I reported the results of an attempt I made to see how accurate the property prices estimated by real estate agents were
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Auction Law: An Overview
Real estate auction law in Australia is determined by State governments. That makes it very difficult to do this part of the website, because most of what I say here only applies to some of the people who may be looking at this site. Although the differences in the laws applying to auctions in Australia aren’t particularly dramatic, they are sufficiently different that I had to produce 2 separate books: one for Victoria, and one for New South Wales. Ultimately, if I want to cover Australia I will need to produce 8 different books, but as most house auctions happen in Melbourne and Sydney, I initially concentrated on Victoria and New South Wales.
Form of Law
Most of the law concerning auctions is what lawyers call “common law”. That means that it is not law written by Parliaments – it is the law as determined by the decisions made by courts. The courts, in turn, generally base their decisions on what they believe is common practice and understanding.
However, Australian State Parliaments have made some laws about auctions. These relate to:
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cooling-off periods
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price estimates by agents
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dummy bidding
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who can bid at auctions
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gazumping
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who can conduct auctions
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how auctions are to be conducted
Cooling-of period
Cooling-off period
I will start with something about which there seems to be an alarming amount of ignorance.
It seems that most people now know that if they buy a house by private sale in Victoria, they are allowed to pull out of the contract within 3 days (72 hours) after signing the contract. Anyone who does this is usually up for a few hundred dollars, but otherwise there is no cost to pulling out.
Similarly, in N.S.W. it seems that most people now know that if they buy a house by private sale in N.S.W., they are allowed to pull out of the contract within 5 business days after the day of signing the contract. Anyone who does this is up for 0.25% of the purchase price, but otherwise there is no cost to pulling out.
Unfortunately it seems that not many people know that if you buy a house at auction in Victoria or New South Wales, there is no cooling off period. None.
When you bid at an auction, you are playing for keeps.
And it shouldn’t be a surprise to anyone – really, there is no sensible alternative. Imagine if you were the seller, and had just gone through the trouble and expense of a 4 week auction campaign, only to have the successful bidder, after everyone has gone home, announce that despite having won a spirited bidding contest at the auction, he didn’t really want to buy the house any more. How would you feel? “No worries, mate, I’ll just spend another few thousand and have another 4 week campaign.” I suspect that’s not what you’d say.
I’m afraid that’s as far as I can go trying to talk about N.S.W. and Victoria at the same time. I will now have to discuss legal issues for the 2 states separately. By the way, what follows is the contents of my respective Chapter 10s in my Victorian and N.S.W. books.
Victorian Auction Legal Issues
Victorian Auction Legal Issues
Price estimates by agents
Strictly speaking, this subsection is not about auctions themselves, but as it deals with a preliminary matter that is very important to auctions, I have included it here.
The good old days
Until early 2004, it was pretty much open slather as to what agents could tell sellers and prospective buyers as to their ideas as to what a house was worth. Agents seemed to have been trained to tell sellers that their house was worth more than the market price (the idea being that sellers would be more likely to engage the agent who gave them the highest price estimate), and to tell prospective buyers that the house was worth a lot less than the market price (with the idea of getting as many buyers as possible to come to the auction – even those who had no chance of being able to afford the market price).
That situation was lousy for both sellers and buyers.
The first try at improving things
So at about that time the Government in Victoria created laws to try to remedy this unsatisfactory situation. The laws required agents to tell prospective sellers what they really thought their property was worth. The laws also said that agents weren’t allowed to give prospective buyers a price estimate that was less than the estimate that they gave the seller. These laws were intended to stop agents from giving prospective buyers price estimates that were way under what they thought the market price of the house was.
Those laws did not work very well, or perhaps it might be fairer to say that they weren’t enforced very well. In any event, there was still obviously a big problem, so the Government had another go at writing laws to try to fix this problem. They did that back in 2016.
The second (and current) try at improving things
So today, the situation is that agents have to give buyers an estimate of the market price of any house that they are selling on behalf of the owner. They are allowed to express that estimate as a price range. The top of that range has to be within 10% of the bottom of the range. The law also requires that the estimates be based on recent sales of houses in the same area as the house being sold.
But there is more!
Did I say, “if there is a reserve price”? I did indeed. There is no requirement in Victoria for a house seller to set a reserve price (there is such a requirement in some other States). Agents, in fact, love it when sellers don’t set a reserve price, as it helps them to put pressure on sellers when push comes to shove in situations where there are buyers who are offering less than the seller wants. Under the new laws there is in fact even more of an incentive not to set a reserve before the auction, because that then provides the best way of getting around the new law (see below a bit further down).
In fact, the law doesn’t talk about reserve price in this context. It says that “any amount that the seller has advised (whether orally or in writing) the agent … [as] the amount that the seller will accept as the selling price” of the house has to fall within the price estimate range. So, if there is a reserve, it has to fall within the estimate. If there is no reserve, clearly this bit of the law doesn’t apply.
Returning to the requirements of the law, if any offer has been made and rejected by the seller, the amount of the offer has to fall within the price estimate range.
And if any of that information changes as the selling campaign rolls along (for instance, if an offer is made 2 weeks into the campaign), the agent must change the price estimate range so that it reflects the changed information.
Returning to reserve prices, my understanding, from talking to acquaintances in the industry, is that many agents now very strongly discourage sellers from setting a reserve price. I am told that there has been a noticeable increase in this behaviour since the law was changed a couple of years ago.
However, from what I have seen, agents are doing this at present more to keep their options open than because they are taking advantage of the loophole that having no reserve price offers. As the results of the informal survey that I conducted and reported on in Chapter 6 show, certainly in a falling market you can be reasonably confident that price estimate ranges are much more realistic than they used to be. Compared with what things were like in the “good old days”, buyers are now in a much better position in relation to getting a fair idea of market price.
And, under the law as it stands now, if the price estimate is a single figure rather than a price range, you can be fairly confident that that is a price at which the owner is prepared to sell the house.
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The estimate cannot be less than any estimate that the agent has given the owner.
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If there is a reserve price, that price must be somewhere within the range.
Will there need to be a third try ?
I might just mention one worrying thing in relation to the 2016 changes. The 2003 law also required that price estimates be expressed as a single price or as a range. The range was identical to the 2016 range. After 2003 agents often gave price estimates in the form of “350,000+”. That was against the 2003 law (because it is a price range, and the top of the range is infinity, when under the law it was only allowed to be 10% greater than the bottom of the range). However, it appears nothing was ever done about this by the Government, and it became an almost ubiquitous practice that supported rampant under-quoting.
The 2016 law has expressly outlawed the practice of giving a price in the form of “350,000+” or anything similar. And yet, on 18 May 2019, shortly before I finished this book, I saw advertised in Domain, the real estate magazine supplement to The Age, a price estimate of “480,000+”. If an estate agent feels that they can so blatantly disregard the law without apparent fear of the consequences, I fear that the 2016 reforms will soon meet the same fate of the 2003 reforms in respect of price estimates, and we will be back to under-quoting becoming the normal situation again.
Please report reserves above the top of ranges
By the way, should you ever come across a situation where it is clear that a house is not on the market at an auction even though bidding has passed the top of the price estimate range (or the price estimate, if there was no range), it is well worth exploring the question of whether the law has been broken.
The only way legally that this situation can occur is if no reserve price had been set by the owner, and the owner advises the auctioneer during the auction of a reserve price that is above the price estimate range. In any other circumstance the auctioneer should, at the very least, have changed the price estimate range on display at the auction before the auction.
Despite the existence of this loophole, you should question the auctioneer if the house is not on the market once it passes the top of the price estimate range as soon as you become aware that it has happened. If you get any response other than “the owner only told me that reserve price when I last went in to consult her/him”, then you know that something fishy has happened, and it certainly will not be to your disadvantage for everyone present to know that.
If something fishy does appear to have happened, and if you feel sufficiently public spirited, you should also report what has happened to the Department of Consumer Affairs once you get the chance. Even if it turns out that a loophole in the law has been used, it is good if the Department finds out how often funny stuff is still happening.
Auctions - Vic
Auctions
Up until early 2004, there were no specific laws about how auctions were to be conducted by auctioneers. In particular, there were no laws that specifically outlawed dummy bidding.
Just briefly, a dummy bid is anything that causes the bid amount at an auction to increase, other than by a bid made by a person who is willing to buy the house at that increased amount. In its most common form, it involves an auctioneer acknowledging a phantom bid.
In the same law that tried to stop bodgy price estimates by agents, the Government also tried to make auctions fairer. The law specifically outlawed dummy bidding. It did allow the auctioneer to make bids on behalf of the seller, but only in a way that made it crystal clear that it was a bid on behalf of the seller. The law also created offences in relation to disrupting auctions, and trying to stop, or otherwise interfere with, those taking part in auctions. Finally the law permitted the making of sub-laws (these are called regulations) concerning how auctions are conducted.
Under this law Regulations were made in relation to how auctions are conducted.
When you go to an auction, you will see on display the rules that apply to the auction. The Regulations require that those rules be there, and also specify what is in those rules.
Dummy bidding
I deal with this topic in Chapter 16.
Just briefly, before 2003 the legal situation with respect to dummy bidding was pretty murky . The 2003 law expressly made illegal any form of dummy bidding that was known to be used up to that time. As far as I am aware no new forms of dummy bidding have come along, so the 2003 law should still be effective. However, as shown with the Government’s attempts in 2003 to stop under-quoting, a law can only do its job if it is effectively enforced. While I have no grounds for suggesting that the dummy bidding laws have not been enforced properly, I note that dummy bidding can be a very slippery activity that can be very difficult to detect (and thus to take enforcement action in relation to). If you are worried about dummy bidding, you definitely need to read Chapter 16.
Vendor bidding
Auctioneers are no longer allowed to make secret bids on behalf of sellers, but they are allowed to openly make bids on behalf of the seller so long as they do it in a particular way.
The auction rules will almost invariably have the following first rule:
(I note that sellers/auctioneers have the option under the Regulations to choose a first rule that says that the auctioneer can’t make any bids on behalf of the seller, but I have never seen anyone choose that option.)
To make a bid on behalf of the seller, the Regulations require that the auctioneer must, before calling for bids, announce at the auction:
Every auctioneer I have seen operate since this law has been in force has chosen to use the words “vendor bid” to indicate that she or he is making a bid on behalf of the seller. That is a sensible thing to do, because that is how the law refers to those bids in various places.
You will note that there is nothing that restricts the number of vendor bids that an auctioneer may make. A number of other States impose limits on how many vendor bids may be made (usually the limit is one). In Victoria it is not all that common to see an auctioneer make more than one vendor bid. The most I have ever seen made at an auction is 2. Vendor bids are usually made to try to turn a dead auction into a live auction, so they are often the first bid made. If the auction stays dead, some auctioneers will then make a second vendor bid before ending the auction. I have not seen vendor bids made if anyone else is bidding, except in the very early stages of an auction.
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The auctioneer may make one or more bids on behalf of the vendor of the land at any time during the auction
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what words she or he will use to indicate during the auction that she or he is making a bid on behalf of the seller; and
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that, by law, only the auctioneer can make
Protection of bidders
The 2003 law also brought in various provisions designed to protect bidders at auctions. There are now fairly severe penalties in place if someone tries to prevent or hinder another person from bidding. The law also penalises any intending bidder who harasses a potential rival bidder at an auction
Disruption of auctions
The 2003 law also forbids a person from doing anything with the intention of preventing, causing a major disruption to, or causing the cancellation of, an auction.
The law expressly states that this provision is not intended to prevent a person from asking, in good faith, a reasonable number of questions at an auction about the house, contract of sale or the conduct of the auction.
Who made the last bid?
The Regulations explicitly state: “If a person at a public auction for the sale of land asks the auctioneer to indicate the person who made a bid, the auctioneer must indicate the person who made the bid before taking another bid.”.
It is useful to know that you have this right if you are bidding at an auction. If you ever have any doubt as to whether a bid made by someone else has come from a real person, you should exercise this right. (I talk in a lot more detail about this sort of thing in Chapter 16.)
In conjunction with this right, you should be aware of the following (which comes from the auction rules imposed by the Regulations):
This is useful to know if you ask the auctioneer to identify the last bidder, and it turns out that the auctioneer has somehow recognised something as a bid that was not in fact a bid.
In the event of a dispute concerning a bid, the auctioneer may re-submit the property for sale at the last undisputed bid or start the bidding again.
If a reserve price has been set for the property and the property is passed in below that reserve price, the vendor will first negotiate with the highest bidder for the purchase of the property.
First right to negotiate
The last rule of the rules imposed by the Regulations is also a very useful one to know, and it is something I am going to talk a lot more about later in this Guide. The rule states:
Although it seems to be a bit wishy-washy, there is a reason for that, and in practice the wishy-washiness is not something you really need to worry about, as it is in the best interests of auctioneers to try to give life to this rule as much as possible. In a tough auction, where it is clear that the house is going to be passed in, this right of first negotiation is the only carrot that the auctioneer can offer bidders. An auctioneer would be cutting off his or her nose to spite his or her face if he or she then didn’t try to follow through with the final bidder. What usually happens is that after the auction the auctioneer will approach you and advise you of the reserve price. I deal with what to do in this situation in more depth in Chapter 22.
Also, you should note that the right given to the highest bidder is to “first negotiate. It is not a right to be offered to buy the property at the reserve price. If you look at advice given on the Internet, it will often describe the right in this latter way. If you see that, it means that the person who wrote the advice was not writing from a Victorian perspective. Other States have not legislated this right in the way that Victoria has. In fact, other States have not legislated this right at all, so it is very much up to local practice as to what “right” a highest bidder has.
Gazumping
Imagine going through a fairly long auction with lots of bidding. Finally you are the last person still bidding. The house is yours. You get a round of applause from those present. The auctioneer then approaches you and asks you to come inside. You sit down where indicated. At that point you are the only one at the table. The auctioneer excuses himself – there is something he has to attend to with the seller first. You wait. You wait a bit longer. The auctioneer returns.
He asks: “Would you be willing to increase the amount you bid ?” You say, “Of course not, I’ve just won the auction with my final bid – that’s what it is – final.” The auctioneer ducks out, and is gone for an even longer time. Finally, he returns, and says “Sorry, you’ve missed out – the owner has just signed with a buyer who as prepared to offer him more.” !!!!
If this was you, then you have just been gazumped !
For many years gazumping did not appear to happen very often in Victoria. It was a New South Wales thing. But then it started happening more in Victoria. The Government responded by having the following rule put into the rules imposed by the Regulations:
So that’s why that provision is there.
However, hopefully you will never have to try to rely on it, because it is also a very wishy-washy provision. For a start, there is no direct enforcement provided for auctioneers failing to comply with it.
Even worse, you probably noticed that there is hole in the rule that is big enough to drive several big trucks through simultaneously. The rule doesn’t apply if you refuse to sign the contract of sale. Fair enough. But, and here’s the enormous hole, the rule also doesn’t apply if the seller refuses to sign the contract of sale.
Huh?
You mean if the seller refuses to sign the contract because the auctioneer tells her that she has a buyer in the next room who is prepared to pay more than you bid for the property?
Yep.
So what is the point of the rule? Well you might ask. All I can say is that fortunately attempted gazumping doesn’t happen much in Victoria.
The auctioneer must not accept any bid or offer for a property that is made after the property has been knocked down to the successful bidder, unless the vendor or successful bidder at the auction refuses to sign the contract of sale following the auction.
Control of bidding
It’s probably also worth pointing out that the rules give the auctioneer total control of how the auction is conducted. In particular, the auctioneer does not have to accept any bid, can determine the size of bids that can be made at any particular time and can withdraw the house from sale at any time during the auction.
One occasionally comes across bidders who don’t seem to be aware of these rules.
NSW Auction Legal Isses
NSW Auction Legal Issues
Price estimates by agents
Strictly speaking, this subsection is not about auctions themselves, but as it deals with a preliminary matter that is very important to auctions, I have included it here.
Until not all that long ago, it was pretty much open slather as to what agents could tell sellers and prospective buyers as to their ideas as to what a house was worth. Agents seemed to have been trained to tell sellers that their house was worth more than the market price (the idea being that sellers would be more likely to engage the agent who gave them the highest price estimate), and to tell prospective buyers that the house was worth a lot less than the market price (with the idea of getting as many buyers as possible to come to the auction – even those who had no chance of being able to afford the market price).
That situation was lousy for both sellers and buyers.
So the Government has recently (2015-16) created a law to try to remedy this unsatisfactory situation. The law requires agents to tell a prospective seller what they really think their house is worth. The agent has to give this estimate to the seller in the agency agreement under which the seller engages the agent to sell the house. In providing the estimate, the agent has to give the seller, or prospective seller, evidence of the reasonableness of the estimate. The estimate is allowed to be expressed as either a single price, or as a price range. If a price range is given, the top of that range has to be within 10% of the bottom of the range.
The law also requires an agent to adjust a price estimate if it appears to the agent that the estimate is no longer a reasonable estimate of the likely selling price of the property. If the agent changes a price estimate, they are supposed to make sure that the change is made all existing copies of the estimate.
I note that the law does not require agents to give prospective buyers a price estimate. The law only says that if an agent does give a prospective buyer a price estimate, the estimate has to be the same estimate as the law required the agent to give to the seller. The same applies to any general advertisements the agent causes to be published that mention the likely price of the house. The law forbids an agent from telling a prospective buyer that the price is less than the estimate given to the seller.
The law also requires the agent to keep a record of any price estimate the agent gives to any prospective buyer.
It will be interesting to see how well this law works, because in essence it is very similar to a law that operated in Victoria from about 2004 until 2016. It was then changed by the Victorian Government because it didn’t appear to have worked very well. However, had the Victorian law been adequately enforced, I think it might have achieved its purpose, so in that sense there is no reason that the N.S.W. law should not work if it is adequately enforced. The N.S.W. law also expressly forbids a practice that was against the old Victorian law, but that was never prosecuted. This involved expressing a price estimate in a form like: “$400,000+”.)
Another interesting aspect of the new law is that it makes no reference to the seller’s reserve price in this context. That is in contrast to the new Victorian law. While I think the better view is that if a seller advises an agent of a reserve price, the agent will be obliged to ensure that the estimated selling range encompasses that price, some uncertainty will remain until, and unless, it is tested in court.
The Victorian law also explicitly states that if any offer has been made and rejected by the seller, the agent has to make sure that the price estimate range is adjusted to ensure that the amount of the offer is encompassed within the price estimate range. I think the better view is that this same obligation falls on agents in N.S.W.
And, for the sake of completeness, I should mention that the law requires that a house seller must give their agent their reserve price in writing before the auction starts. That raises an interesting question if that is done immediately before the auction starts, and if the reserve price is above the agent’s estimated selling price. In these circumstances I would argue that there is nothing that the agent can reasonably do to adjust the selling price. I think it would be asking too much to require the agent to make some sort of announcement before the auction starts, as price estimates are not a topic that is raised at auctions.
So, summarising the new law, compared with what things were like in the “good old days”, buyers should now be in a much better position in relation to getting a fair idea of market price.
And, under the law as it stands now, if the price estimate is a single figure rather than a price range, you can be fairly confident that that is a price at which the owner is prepared to sell the house.
By the way, should you ever come across a situation where it is clear that a house is not on the market at an auction even though bidding has passed the top of the price estimate range (or the price estimate, if there was no range), there is a good chance that the law has been broken.
If this situation arises, I would encourage you to question the auctioneer about it. If you get any response other than “the owner only told me the reserve price immediately before the auction started”, then you know that something fishy has happened, and it certainly will not be to your disadvantage for everyone present to know that.
If something fishy does appear to have happened, and if you feel sufficiently public spirited, you should also report what has happened to N.S.W. Fair Trading once you get the chance. Even if it turns out that a loophole in the law has been used, which is unlikely, it is good if Fair Trading finds out how often funny stuff is still happening.
Auctions - NSW
Auctions
The Property, Stock and Business Agents Act 2002 No 66 regulates auctions in N.S.W. This law deals with a number of specific topics in relation to house auctions, and then specifies some general conditions that apply to all house auctions. I will deal with the specific topics first, and then describe the general conditions.
Bidder registration
Overview
You cannot bid at a house auction in N.S.W. unless you have registered with the agent conducting the auction. The agent has to record your registration in a document called a Bidders Record.
If you are bidding as one of a couple, only one of you needs to register.
Once you have registered you will be given a bidding paddle that has a number unique to you on it. To bid, you need to hold the paddle up in a way that enables the auctioneer to see the number.
To be able to register to bid, you need to provide the agent with proof of your identity
When do I register ?
Under the law you can register as a bidder at any time before or during the auction. However, I would advise you not to leave it until during the auction, unless you want to make yourself the centre of a whole lot of aggro, as there is no way you can register during an auction without being fairly disruptive.
So, you would be best off registering at one of the open for inspections of the house. If you do not do it on auction day you will probably not be given a paddle at the time you register, so you need to make sure you pick up a paddle on the day of the auction.
If your register before auction day, you do not need to show you proof of identity at that time. However, you will have to make sure that you show the agent your proof of identity on the auction day before the auction. You won’t be given an identifying number or a paddle before you show proof of your identity.
What ID do I need to show ?
Essentially you need to show the agent documentary proof of your name and address. The documents need to have been issued by a government body or agency (from anywhere in Australia), or by an authorised deposit-taking institution (essentially, a bank).
If you have a document from one of these official issuers that has both your name and address (such as a driver’s licence or learner’s permit, a council rate notice, a vehicle registration notice or a bank statement), then that’s all that you need.
If you only have a document from an official issuer that shows your name (such as a passport, Medicare card, ATM/Eftpos card, credit/debit/store card, birth certificate or citizenship papers), then you will also have to show the agent a document that shows your name and address (such as a utilities bill, or a rental agreement). If you don’t have such an address document, then you can use a statutory declaration made by you that states your address).
You can also use a foreign passport and driver’s licence as ID, but you must then also have either a card or document issued by someone other than you that shows your address, or a statutory declaration made by you that states your address.
What information will be recorded in the Bidders Record?
When the agent registers you, he or she should only record your name and address, and your bidder identification number.
If you are bidding on behalf of someone else
There is a bit more rigmarole if you will be bidding on behalf of someone else.
In addition to registering on your own behalf (which means that you have to ID yourself), you will also have to give the agent:
a letter from the person on whose behalf you are going to bid that authorises you to bid on their behalf and that sets out that person’s name and address; and
the bidding identification number for that person, which suggests that the person also needs to have registered as a bidder.
The second of these requirements doesn’t apply if you are bidding on behalf of someone else under a power of attorney (although curiously, it appears that you still need the letter of authority).
The law also makes special provision here if you are bidding on behalf of a company.
Do I have to bid if I am registered?
No.
Who can see the Bidders Record?
The agent/auctioneer is not allowed to show the information in the Bidders Record to anyone other than Government inspectors. The law envisages that sellers might be allowed to see the Bidders Record, but at present they are not allowed to do so. he law also forbids agents/auctioneers from using the information for any purpose not related to the auction.
Of course you can pretty safely assume that anyone else lining up with you to register is probably going to register to bid, and that anyone who is holding a paddle is also registered to bid.
Bidders Guide
16
The law requires agents to take all reasonable steps to provide prospective bidders before an auction with a document prepared by the Government that sets out pretty much the same information that I set out in this Chapter (minus the commentary).
Dummy bidding
I deal with this topic extensively in Chapter 16.
Just briefly, a dummy bid is anything that causes the bid amount at an auction to increase, other than by a bid made by a person who is willing to buy the house at that increased amount. In its most common form, it involves an auctioneer acknowledging a phantom bid.
The law forbids dummy bids. However, a law can only do its job if it is effectively enforced. While I have no grounds for suggesting that this law has not been enforced properly, I note that dummy bidding can be a very slippery activity that can be very difficult to detect (and thus to take enforcement action in relation to). If you are worried about dummy bidding, you definitely need to read Chapter 16.
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announce at the auction before bidding starts that she or he is allowed to make that bid;
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and when making the bid, announce that the bid is a “vendor bid” or that it is made on behalf of the seller.
Vendor bidding
Auctioneers are not allowed to make secret bids on behalf of sellers, but they are allowed to openly make one bid on behalf of the seller so long as they do it in a particular way.
To place a bid on behalf of the seller (and the auctioneer is only allowed to place one bid on behalf of the seller), the conditions under which the auction is conducted must allow the placing of such a bid, and the auctioneer must
The conditions under which the auction will be conducted (these are specified by law) do allow a vendor bid if the auctioneer announces that she or he is only allowed to place one vendor bid.
If a property is passed in, and the last bid made was a vendor bid, the law requires that any reporting by the agent/auctioneer of the amount that the property was passed in at has to make it clear that that amount was bid as a vendor bid.
Protection of bidders
The law has various provisions designed to protect bidders at auctions. There are now fairly severe penalties in place if someone tries to prevent or hinder another person from bidding.
Conduct of auctions
The general conditions applying to the conduct of house auctions are set out regulation 15 of the Property, Stock and Business Agents Regulations 2014 (incidentally, they also apply to auctions of livestock, but I’ll leave that to another Guide).
There must be a reserve price
I have already mentioned the first 2 of these. The first condition requires the seller to give the auctioneer their reserve price before the auction.
How many vendor bids may be made
I have also previously mentioned the gist of the second condition. It says that if the auctioneer wants to be able to place a vendor bid, she or he must announce before the auction starts how many vendor bids may be made. Of course, in the case of house auctions, as I have also mentioned, the law only allows the auctioneer to place one vendor bid, so “one” is what you should be hearing from the auctioneer.
Highest bidder is the purchaser
The next condition states that “the highest bidder is the purchaser, subject to any reserve price”. It is unclear whether this is intended to do more than simply affirm what we all take to be the obvious. It might also be intended to create a contractual obligation that the highest bidder be the purchaser, but it does not really have the legal oomph needed to achieve that. I discuss this in more detail in the “Gazumping” subsection below.
The auctioneer is the boss
The next 2 conditions are typical auction rules: the auctioneer is the sole determiner of sorting out any disputes concerning bids, and is able to refuse to accept any bid.
I note that if there is a dispute as to where the bidding stands, the normal practice of auctioneers is to take things back to the last undisputed bid, and to go forward from there. In extreme cases an auctioneer might start things from scratch again.
Usually the only bids that auctioneers refuse are bids for a rise that is lower than the rise they are looking for at a particular time.
You need authority to be able to bid for someone else
The next condition is a bit strange. It essentially says that if you think you are bidding on behalf of someone else, you had better make sure that you have given the auctioneer a copy of your written authority to do that, or else you will be considered to be bidding for yourself. There are a number of things I could say about this, but all I will say is that if you are going to bid for someone else, you now know what to do.
Boredom alert
I am about to embark on a fairly lengthy analysis of the law relating to gazumping. The upshot will be that I will advise you to sign the contract as quickly as possible after the auction. If you don’t particularly need to see how I got to that conclusion, you might want to skip this subsection.
Gazumping
The last 2 conditions relate to gazumping.
Imagine going through a fairly long auction with lots of bidding. Finally you are the last person still bidding. The house is yours. You get a round of applause from those present. The auctioneer then approaches you and asks you to come inside. You sit down where indicated. At that point you are the only one at the table. The auctioneer excuses himself – there is something he has to attend to with the seller first. You wait. You wait a bit longer. The auctioneer returns.
He asks: “Would you be willing to increase the amount you bid ?” You say, “Of course not, I’ve just won the auction with my final bid – that’s what it is – final.” The auctioneer ducks out, and is gone for an even longer time. Finally, he returns, and says “Sorry, you’ve missed out – the owner has just signed with a buyer who as prepared to offer him more.” !!!!
If this was you, then you have just been gazumped!
I have just described auction gazumping. However, most of the gazumping you hear about, usually in the form of complaints, is gazumping that occurs during the private sale process. This is very much a N.S.W. specialty.
With respect to auction gazumping, according to the Fair Trading NSW: “Gazumping cannot occur in the auction process."
That is a very bold (and bald, because there is no further explanation given) statement.
There are 3 conditions in the auction conditions that apply to auctions in N.S.W. that are possibly relevant to gazumping:
Condition 1(c) states:
The highest bidder is the purchaser, subject to any reserve price.
Condition 1(g) states:
A bid cannot be made or accepted after the fall of the hammer.
Condition 1(h) states:
As soon as practicable after the fall of the hammer the purchaser is to sign the agreement (if any) for sale.
I should start by noting that these auction conditions, while they are required by law, are not enforceable in any way that would be useful to someone who is the victim of an auction gazumping. Ignoring, for the moment, problems with the conditions themselves, I note that the better view is that a breach of the conditions is not a criminal offence of any sort. Certainly there is nothing in the either the relevant Act or Regulation that makes a failure to comply with the conditions an offence.
While there is a way to get around that failure, I do not think a modern court would be prepared to use that way in the circumstances of these conditions. In that respect I note that conditions 1(c) and (g) do not impose an obligation on anyone expressly, and condition 1(h) only imposes an obligation on the purchaser. If a gazumping occurs, it will not be the purchaser who is doing the ‘wrong’ thing – it will be the seller. In any event, even if auction gazumping was a criminal offence, that still would not improve the situation for the victim with respect to their right to the land for the reason I will mention in the next paragraph.
If a breach of the conditions does not create a criminal offence, then the only force they can have is as contract terms between the buyer and the seller. The problem with that is that there is nothing in any relevant law that gives those terms enough force to overcome the legal requirement that contracts in relation to land can only come into force when there is a contract signed by both the seller and the buyer. (I note that this is the requirement that enables gazumping in the private sale situation.)
Therefore if you are the victim of an auction gazumping, you cannot argue that you have a right to the house. By that time there will be a signed contract between the seller and the buyer who gazumped you. You will possibly have some claim against the seller for breaching the auction contract, but all you will be able to get out of that is money, and even that is no certainty.
In that respect I note:
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As I have mentioned, condition 1(c) imposes no express obligation on either the auctioneer or the seller.
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Also, condition 1(c) only applies if your winning bid was over the reserve.
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Although condition 1(g) imposes no express obligation on anyone, in its context it arguably imposes a contractual obligation on a bidder not to make a bid after the fall of the hammer, and on the auctioneer not to accept such a bid. However if that is so, it is unclear what consequence follows if either the bidder or the auctioneer fails to comply with the condition. If a bidder makes a late bid, and the auctioneer ignores it, so what? Who has that harmed in any way? The bidder is out of the picture by that point anyway. And if the auctioneer accepts the late bid, it might possibly give the previous highest bidder some sort of contractual right for damages against the bidder and the auctioneer, but it won’t give the previous highest bidder any rights with respect to the house.
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Condition 1(h) imposes no obligation on the seller – if the seller refuses to sign the “agreement (if any) for sale”, or has signed that agreement with someone else as the buyer, the seller has not breached the condition.
Therefore, if you are the successful bidder at an auction, you would be wise to do everything possible to make sure that the contracts get signed as soon as possible after the bidding stops.
In that respect I note that it is probable that most agents will try to give effect to the clear intent of Fair Trading N.S.W. that auction gazumping should not happen, as I imagine that if an agent is a party to auction gazumping he or she could expect quite a going over and much ongoing hassle from Fair Trading. But hopefully you will never have to see if that is so.
Conduct of auctions – what’s not there
In addition to the written conditions that apply to house auctions, there is some unwritten stuff. As some of it is quite important, I will need to describe it to you as well.
Although an auctioneer has total control of an auction, it doesn’t mean that they can do whatever they want. If an auctioneer appears to be doing something that is fishy or unfair, they will quickly find that there are no bidders.
No bidders = no chance of selling the house = unhappy seller = (eventually) no more work.
This means that there are certain things that you can confidently do as a bidder.
You can ask questions
If you have any questions about anything that the auctioneer says in their opening spiel, feel free to ask. In any event, the auctioneer will probably invite you to do this. I have a whole Chapter (Chapter 15) on this topic. Similarly, if anything happens during the auction that you are not clear about, feel free to ask the auctioneer about it.
Who made the last bid?
In particular, if you have doubt as to who made a bid called by the auctioneer, or whether in fact a real bid has been made, feel free to ask the auctioneer who made the bid. The auctioneer should be able to get that bidder to wave their paddle at you. (I talk in a lot more detail about this sort of thing in Chapter 16 in the subsection headed “Ask for other bidders to be identified”.)
As I mentioned previously, if it turns out that the auctioneer has somehow recognised something as a bid that was not in fact a bid, the usual practice is to take bidding back to the last undisputed bid.
First right to negotiate
In cases where it looks to the auctioneer as if the reserve price is a dim light at the end of a long tunnel, she or he needs something to offer as an incentive to try to keep bidding going for as long as possible. The theory is that while there is bidding, there is hope (of reaching the reserve price), however faint that hope might be. But what incentive can the auctioneer offer to bidders to keep them interested ?
Essentially there is only one thing that they can offer. So they do.
If the reserve price is not reached, the auctioneer can offer the last person to bid the first right to negotiate with the seller. In practice that means that the last bidder will, once the auction is over, be told what the reserve price is, and be given the opportunity to buy the house at that price.
But will the auctioneer follow through on this? I think that you can rely on that being the case. An auctioneer would be cutting off his or her nose to spite his or her face if he or she then didn’t try to follow through with the final bidder. If an auctioneer didn’t follow through, and if that became known, no one in future auctions would be interested in competing for what would then become “so called” first negotiation rights.
Later in this Guide you will see that I consider this right of first negotiation to be a very valuable right that you should go out of your way to obtain for a house that you are interested in.
Footnotes
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Once the Government began getting serious about enforcing the laws, which seemed to start happening in about 2015, we got a glimpse of what might have been under the 2004 laws. Unfortunately that happened 10 years too late, and in the meantime underquoting was as bad as anything seen before 2004.
The relevant law is the Estate Agents Act 1980, sections 47A – 47D. The easiest way to find an electronic copy of any Victorian law is to go to the “LawToday” website.
There is an exception to this if the agent reasonably believes that fewer than 3 comparable properties were sold in the preceding 6 months in the relevant area. There have been suggestions (by me (see footnote 30)) that this also creates a potential loophole for the working of the new laws.
This does not apply if the offer is rejected for reasons other than the price offered.
See section 47C(2A) of the Estate Agents Act 1980.
On 3 June 2017 The Age reported that early indications were that the new laws had resulted in reductions of underquoting. The report referred to data collected by price predictor tool realAs. The data showed that in May 2016 there was an average price difference of 28.4% between the quoted price and the sold price in the worst Melbourne suburb for underquoting. The difference for the first 3 weeks of May 2017 was 20.8%.
While that does not seem to be much of an improvement, particularly given the nature of the new laws, it should be noted that in May 2017 the new laws had not been in operation for very long. Also, the figures need to be interpreted with caution, as some part of the percentage difference can be attributed to price estimates not keeping up with reality in a rising market.
It is also unclear how bad the underquoting situation was in 2016. Certainly in the years immediately before then underquoting was rampant, but in 2016 there were a considerable number of high profile prosecutions of high profile agents who underquoted, and these cases resulted in very substantial fines, and undertakings by the agents to desist from underquoting. It is therefore possible that by 2016 things were improving, regardless of the new laws.
You might also find an informal survey I conducted of interest: see “Determining market price” in Chapter 6.
The 2003 law was the Estate Agents and Sale of Land Acts (Amendment) Act 2003. If you want to see the current version of this law with respect to auctions, it is best to look at Division 4 of Part II of the Sale of Land Act 1962.
The law also makes provision for part owners to bid at auctions in circumstances where they want to buy the house in their own right. As that is a pretty unusual occurrence, I am not dealing with it in this Guide (and also because it is not something that affects any of the advice that I give in this Guide – for our purposes they are effectively just another bidder). I note that if part owners may be bidding, the law requires the auctioneer to explain at the start of the auction that it may happen, and also how it will work. There are also specific sets of auctions rules for these circumstances.
The current version of these Regulations is called the Sale of Land (Public Auctions) Regulations 2014.
Some auction rules before this time actually ‘authorised’ unannounced auctioneer bidding on behalf of the seller.
There is a very old law (known to law students as the Statute of Frauds) that prevented, and that in its modern form still prevents, anything legally binding happening with land until a document has been signed by both parties to a transaction in relation to land. Thus, simply being the winning bidder at an auction of land does not give you any rights in relation to the land until you and the seller of the land have signed a contract of sale. There are other legal rights you have if the seller doesn’t sign the contract (and similarly, the seller will have certain rights if you don’t sign the contract), but in neither case do those rights directly involve the land itself.
By that I mean that an auctioneer commits no express offence under the Sale of Land Act by failing to comply with this rule. To do anything about the auctioneer you would have to start the processes that would see disciplinary action taken against the auctioneer for failing to comply with the law. Unfortunately, even if that is ultimately successful, it won’t help you in any way to get the house you missed out on.
There is nothing in the rules that stops the situation I have described. First, there is nothing in the rules that applies to sellers. Second, there is nothing in the rules that stops an auctioneer from passing offers on to a seller after an auction. Third, once a seller has refused to sign, the rule does not restrict what the auctioneer can do in any way.
Division 3 of the Property, Stock and Business Agents Act 2002 No 66.
Part 5, Divisions 2 and 3, and Part 6 contain the provisions of chief interest to house auctions. This Act is also supplemented by the Property, Stock and Business Agents Regulations 2014.
See regulation 12(3) of the Property, Stock and Business Agents Regulations 2014.
See section 71 of the Property, Stock and Business Agents Act 2002 No 66.
See sections 66 and 66A of the Property, Stock and Business Agents Act 2002 No 66.
See section 66A of the Property, Stock and Business Agents Act 2002 No 66.
See section 76A of the Property, Stock and Business Agents Act 2002 No 66.
See section 78 of the Property, Stock and Business Agents Act 2002 No 66.
See https://www.fairtrading.nsw.gov.au/ in the information it provides under the heading “Gazumping”.
Section 77(1) of the Property, Stock and Business Agents Act 2002 authorises the making of regulations that prescribe conditions that are to be applicable to auctions of land. Regulation 15 of the Property, Stock and Business Agents Regulation 2014 actually prescribes those conditions.
I note that this requirement also applies even if a failure to comply with the auctions conditions was a criminal offence.
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Footnotes
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