Monday, September 3, 2012

The Australian House "Auction"

House auctions are far more popular in Australia and New Zealand, where around 40% of sales are conducted this way. But the idea of an auction can get pretty whack.

Vendor bid auction reform needed
A high-profile Melbourne buyers' agent has called for the introduction of a limit on the number of vendor bids allowed to be placed at Victorian property auctions. There is no cap on the number of vendor bids at Victorian auctions.
Okay, let's back up a bit. Just to be sure we are all clear on this, a vendor bid is one the homeowner makes on his own house. During the auction. Yes, the homeowner bids on his own house. Did I mention whack?
Buyers' agent Frank Valentic’s call came after he attended a recent Clayton auction where the auctioneer placed three vendor bids.

“Should we allow only one like NSW?” Valentic tweeted.
Why is this even a debate?? How about no flipping vendor bids? What part of "auction" (a public sale where goods are sold to the highest bidder) isn't clear here? How can you "sell" something . . . to yourself?
Peter Mericka, who runs the Lawyers Conveyancing website, has noted previously that the legislation permits an auction to be "crippled" if mutiple permissible vendor bids are used by the auctioneer.
"Five is right out."
Many auctioneers are loathe to lodge more than two vendor bids, one to open and another to close proceedings where buyer interest is restrained.
Yeah, I'm still seeing Monty Python here. People are arguing the fine point of auctioning property off to yourself.
But last October there were three vendor bids when the West Hawthorn home of former Hawthorn AFL premiership captain Sam Mitchell was passed in at its weekend auction.

The onsite auction opened with a $1.05 million vendor bid. There was then a $1.1 million vendor bid. It concluded with a $1.15 vendor bid.

This is termed "passed in". Then the house sold afterward for $1,049,500. This is true in many cases. And the article goes on to detail how fair or unfair the process is for handing post auction offers. This is even more whacked.
Thus, if a genuine bid is received before the final vendor bid an agent would have to deal with that bidder first rather than throw the process open to all comers.

The advice does not apply if no genuine buyer bids were received during the auction.
Wait, you held an auction, won your own house, then you . . . opened it up to bids . . .

Or worse yet you got one or two legit bids, overbid the highest yourself, then hoped those buyers would submit another bid afterward. Auction theatre?
REIV data shows that more than 40% of all properties going under the hammer are currently being passed in, with nearly two in three of them on vendor bids.


me said...

I can see an opening bid and a secret reserve price. That's two vendor bids. Anything else should be banned. Auctions have an upward bias.

GG said...

Yes, a reserve price (usually secret) is completely reasonable. The vendor opening bid is a bit weird, but not different than "bidding will start at ____" or "opening price is ____"

Anything else, especially if there are real bids, smacks of dishonorable dealing. Being the only multiple bidder smacks of the twilight zone.

jesse said...

This seems to be attempting to compensate for auction market failures, which I'm hearing more of these days than before. It sounds kabuki theatre to me.

Love the commentary, from an outsider looking in, it looks like they're trying to figure out an LBW rule.