Disclosure key to dummy bids

MOVES by the Australian Competition and Consumer Commission and the Department of Consumer and Employment Protection to abolish dummy bidding at auctions in WA will decimate the market, according to players in the local property sector.

FPDSavills managing director Jeff Braddock believes increased disclosure is a far better solution to concerns about non-genuine bids at auctions.

“The role of an auction is to maximise the sale price of a property,” Mr Braddock said.

“I think like a lot of things people are afraid of what they don’t understand and dummy bidding conjures up images of underhand dealings in the industry.”

Mr Braddock maintains full disclosure of the use of vendor bids at auctions would assuage many people’s concerns.

“I believe disclosure should be more apparent at auctions,” he said.

“It’s stated in the preamble, it’s stated in the contract, but you could also nominate the vendor bid.

“The auctioneer could say: ‘We’re going to start with a vendor bid at whatever price and be quite up front’.

“The auctioneer could take bids off a wall if those vendor bids are disclosed.”

By disclosing the use of dummy bids the auction market could be allowed to continue without concerns about any-thing underhand, Mr Braddock said.

“Everyone would then be bidding on an informed basis,” he said.

“In the main, auctioneers and agents are happy to disclose anything to do with the sale contract.

“Killing vendor bidding may detract from the use of the auction process whereas disclosure would get rid of 90 per cent of the problems.”

In WA properties sold at auction account for only 2 per cent of all sales.

Mr Braddock said that, although, auctions were not very popular with commercial property, their frequency was increasing.

“They are popular with properties that are unique, where there is perhaps difficulty in putting an actual price on the property,” he said.

“They’re not as popular with commercial property, although they’re getting more so.”

Some industry concerns about the auction process have been highlighted by the activity in Melbourne and Sydney, where auctions represent a far greater share of the sales.

The ‘cooling off’ period’ that exists in the real estate market on the east coast makes auctions a more popular option.

Unlike WA, in NSW and Victoria a transaction is not unconditional until there’s been an exchange of contracts.

“In WA we’ve never had that system, we’ve always had a system of private treaty,” Michael Johnson & Co principal and auctioneer Ian Cornell said.

“In WA you buy a property subject to finance, a white ant inspection etc, whatever you want. When all the conditions are met, the contract becomes unconditional.

“During that period no-one can step up and accept any other offer, and you could sue if that happened because you can’t enter into more than one contract.

“For the ACCC to suddenly step in and say it wants to put added conditions on because it believes dummy bidding is going on in excess of the reserve is rubbish.”

Mr Cornell said vendor bids above the reserve price did not occur.

“An auctioneer wouldn’t dare put a dummy bid above the accepted price because it would jeopardise the whole system,” he said.

“If you did a straw poll of auctioneers, you’d find they just don’t do it”

Mr Cornell said dummy bidding also helped build the confidence of other bidders.

“We’ve auctioned hundreds and thousands of blocks of land in WA and we’ve never had any problems,” he said.

“No-one ever goes above the reserve price, they’d be drummed out of town if they did.

“They [the ACCC] say they have concerns, but my concern is that they are spreading a furphy.”

In WA, where there are relatively few auctions, many properties sell for below the reserve price.

“With run of the mill properties nine out of 10 battle to get to the reserve, let alone exceed it,” Mr Cornell said.