New Act to control rural land and property auctions
New controls came into effect on 1 August 2003 to combat “tricks and practices” in auctions that consumers fear may artificially inflate prices.
A major concern of consumers is dummy bidding, when a non-genuine bidder planted at an auction by Agents or owners creates the impression that there is more interest in a property than really exists.
In one case, a 12th, final (and genuine) bid at auction was preceded by 11 dummy bids. The Auctioneer invented 5 bids, a person engaged by the Vendor’s Real Estate Agent made 4 bids and the Auctioneer’s Agent made 2 bids. In this case the Defendant, arguing that he was not bound by the Contract for Sale, tried to establish (unsuccessfully) that he had also made a false bid.
As the Minister responsible recently described the situation, currently the auctioneer can generate fictitious bids “from trees, and passing cats, dogs and birds or other imaginary bidders.”
Under the new Act the number of Vendor bids at an auction of residential property or rural land will be limited to one, which must be notified in the conditions of sale. The Act makes a distinction between rural land and other land auctions, which are not covered by it - rural land is defined as land used for grazing livestock, dairying, orcharding or any other purpose declared by the regulations to be a rural purpose.
The Auctioneer is required to state clearly that the bid is by the Vendor or someone on behalf of the Vendor or Auctioneer, as soon as it is taken. Essentially while one dummy bid may still be taken, it is intended that it be exposed.
Licensed Agents will record bidders’ names and addresses after getting proof of identity in a bidder’s record which is to be given to the Auctioneer before the bids are taken. The bidder is then identified at the auction by something such as an allocated identifying number which is also recorded. A bidder whose name is not listed because of a failure on the Agent’s part will still be able to make a binding bid, but an Auctioneer may attract a fine of $11,000.00 for taking one.
There are other significantly increased penalties, for instance, failure by Vendors, their Agents or Auctioneers to follow the new rules on dummy bidding may result in fines of up to $22,000.00. An Agent who fails to properly maintain a bidder’s record may be fined up to $11,000.00.
There are still some unclear areas, such as what happens if someone you know well bids at an auction of your property; or what if a trustee family member puts a family property to auction after Probate is granted and wants to buy it on their own behalf.