Yet another case study for you all to read, whilst I vent my spleen about the latest frustration with auctions!! On Saturday we attended an auction on a property that we were told (at an earlier inspection) had a price guide of mid to high $1.2mil's. Knowing that this property last changed hands just over two yrs ago at $1.27mil, and with this particular area's price drops since then, I didn't consider the price guide unrealistic. The vendors had, however, made significant improvements to the property (some $80-100K worth) so were obviously looking to recoup some of these. Great turnout at the auction, with registered bidders and a beautiful day. Only one genuine bid, however, at $1.2mil and then nothing. The auctioneer, as allowable by NSW law, then placed a bid in on behalf of the optimistic vendor of $1.45mil When this occurred, the only other genuine bidder at this stage was encouraged by one of the REA's to "put a bid in and it's yours!" Obviously, he wasn't going to be swayed and replied that he wasn't going to be bidding against a VB (and rightly so in this circumstance!) In the end, the property got PI on a VB of $1.45mil. Call me anything you like, folks, but I still consider this practice both unfair and misleading. With price guides given out some $200K short of the "real reserve" some selling agents have no one else to blame for the poor perceptions of them by the buying public. It will be an interesting property to follow up on, however, and I will keep you informed as to the final outcome
What a joke - why do they even bother setting a "realistic" sale amount when they already know its going to be much more than that...
The agent may well have been providing you with what he thought the realistic price of the property was/should go for in the current market. The Vendor does not have to disclose their reserve until right before the auction. I'd say you have an unrealistic vendor who wants to get back what they paid, plus their renno costs. If you are interested, stay in contact with the agent. Sounds like the auction may have slapped the vendors in the face with the "real" curent value of the property. Remember, values are dictated by the number of "actual buyers" on any particular day. If you are keen, perhaps you should submit what you think it is worth to the vendor for consideration. Cheers Bundy
Some of the fault, however, has to lie with the agents in these situations, as they should have provided a more realistic appraisal when they were hired for the job of selling in the first place. I realize some vendors give reserves above expectations and don't reveal them until actual auction day, but most agents are pretty competent in getting vendors to reveal their bottom line well before this. The auction process still has many flaws, in my humble opinion, and examples such as this one only serve further to demonstrate the waste of funds that accompany such events ie: buyers building/pest inspections, contract reviews, sellers auction fee costs, marketing etc
Hi Jacque, I thought agent now had to quote realistic prices in their ranges and the VB couldn't be above the reserve. If $1.45M was the reserve then $1.2Ms seems a tad low - or doesn't this apply in NSW? Dave
Good question, and you are indeed correct that a VB can't be above the reserve. Because it's akin to a dummy bid (and pretty useless if you ask me) it holds little sway anyway. As far as price estimations go, it's still an area that can be exploited, however, even under the 2002 Property Stock and Business Agents Act and the subsequent PSBA Regulations of 2003. According to regulations within these Acts, agents are obligated to provide the vendor with a written estimation of price in their Sales Inspection Report when undertaking an agency agreement to sell the property. This written estimation can then be requested by the Director-General as evidence that the agent has not been misleading vendors or prospective purchasers as to what the likely estimated sale price will be. This can also include misleading advertisements or even verbal quotes (much harder to prove) by the agent. A price range, however, can also suffice, as it's true that some properties are difficult to place an accurate estimation on. Don't forget too, that agents have an obligation to develop practices to ensure that they make fair estimates of selling prices and can demonstrate what information they relied on to make their estimations in the first place. They are not valuers, however, so as long as they can substantiate their estimation it's still taken as just that- an estimation, or mere opinion. The Office of Fair Trading also recognises that external factors play a role in determining price (prevailing market and economic conditions, seasonal factors, time on market, interest rate movements etc) so it's still rare to see an agent being penalized for an incorrect price estimation. The harder part is auctions, however, as vendors do indeed hold the control when it comes to setting reserves. They can also change their mind at whim! However, agents still have a legal obligation not to mislead buyers here either, so how do they ensure that they are not engaging in deceptive practices against potential purchasers? It's all too easy to blame the vendor for not setting a reserve until auction day, which the agents were not aware of...... I believe that the reserve should be set prior enough so that the agent knows of and is fully aware of what the vendors are seeking. Should it be unrealistic then it's up to the agent as to whether or not they decide to take on that particular listing. At all times, however, they should NOT be misleading potential buyers (which is all too common) to get their hopes up, when they have the knowledge that they haven't got a chance in hell of securing the property. Would appreciate others' opinions here- it's a worthwhile topic of discussion.
I don't know if legally it does or doesn't apply in NSW, but regardless, it should morally apply. I think it is outrageous to provide a vendor bid that is a quarter of a million dollars more than the market was prepared to pay. I am aware that when the highest bid is reported in the newspaper it will have VB next to it, however, I am sure that there are some people who may not know what it stands for - they may think the Victoria Bitter is a major sponsor!
I'm late to this thread but I don't see any problem with the scenario described - nothing unfair or misleading - other than a possible unrealistic vendor, but that is not unique to the auction system.
I can't agree with you about it not being misleading. The highest price that the market was prepared to pay on the day was a quarter of a million dollars less than what the property was reported to have been passed in at (in the newspaper the following day). So those who didn't attend the auction would probably believe that bidding ended at or near $1.45million - grossly misleading.
Sorry I can't agree, it is not misleading in any way. VBs are tagged in the newpapers (at least in Melbourne) as VBs, not as real bids. In the newspaper it is SO = sold, PI = passed in, VB = vendor bid, SB = sold before, PS = private sale. No confusion, in fact very open compared to the cloak-and-dagger of PS's. If that is not the case in Sydney then the problem lies with the newspaper reporting not with the auction system.
Now I know where your location (Heaven/Hell) is - Melbourne. Probably not a bad description for it. You wouldn't happen to be in the real estate game by any chance? I mentioned earlier that VB is written beside such results, however, whilst we (as property investors) may be very familiar with the abbreviations (and most importantly, their meaning), many first time buyers will not be. They will probably be led to believe that there was genuine interest near the bid quoted. Additionally, Jacque was making the point that bidders were told that the price guide was in the mid - high $1.2 million region - this was obviously not the case if the vendor's bid was about $200 000 more than that! How can that not be misleading?
Why would they? VBs indicate nothing of the sort. If you saw a house advertised for PS for $1m would you "be lead to believe" it was worth $1m?? If you do then might as well start unbuttoning that shirt of yours. It's a matter of basic RE education. There's a saying here in auction-vile that seems to hold quite a bit of truth, "quote 'em high, watch it die; quote 'em low, watch it go". So either the REA was doing their job, or the vendor wanted more than the REA thought they'd get. What's new then?
I think most people are tired of seeing advertising tactics that prey on simple people. If an agent can't commit to an asking price, an auction shouldn't be promoted with 'bidding from...' unless the property will sell at that price, IMHO. Publishing VB's when they are so misleading just adds to the confusion in the marketplace. The fact that some people think an REA "is doing their job" using these tactics is why the industry will take a long time to be respected. I fully understand agents need to work for vendors not buyers, I just think you can work for people while showing integrity and honesty - something a decent number of REA's still have a poor grasp of.
An REA doesn't set a sell price. The REA has a guess on a likely range. They are required by law to justify this range with previous sales history. Meanwhile the Vendor decides a reserve (but not often until the night before auction once the campaign feedback is in). It is the bidders on the day that set the price, no one else. I sold our PPOR for 25% over reserve at auction. Is it my fault the market had risen sharply over the previous couple of months when all the sales histories suggested my reserve was OK, or was it my fault two different parties decided they absolutely had to have my place and bid the price up so much? Of course not. I would never ever sell a house in any way other than auction for this very reason. We had an agent who doesn't auction houses pitch for our business, despite having previous sales history to back up his suggested asking price, if I'd gone with them and not to auction it would have cost me $200,000. So I have no sympathy for whining buyers. It is not the REAs fault buyers can't read a legend in the RE columns in the newspaper, it is not the REAs fault under-bidders missed out on the house, it is not the vendors fault the under-bidders missed out on the house; they were put to a test in a public situation and either came up short or decided to walk away. End of story. I think a lot of confusion is due to lack of familiarity with the system that’s all. In Melbourne it is the most popular method of sale in inner suburbs. Frankly I'd rather deal with an auction purchase than a PS one any day, PS's are terrifying, auctions are easy. It's a culture thing
I don't have a problem with buyers setting the sale price - but I think it sucks when many REA's advertise "bidding from..." amounts substantially below the reserve (that happens in Queensland, still) and using publication of VB's to skew people's perceptions of the market, when the KNOW they confuse people.
And this demonstrates my point. The quote seems to indicate that a lower than realistic price guide should be provided; you then have first time buyers who don't have your experience paying for building and pest inspections and wasting their time, because the REA knows it will sell for considerably more. I would prefer the saying "qoute 'em real, seal the deal"! I gather this from your post, however, as I've already stated, not everyone has your level of property education. I guess we'll have to agree to disagree on this subject.
shake-the-disease, I think you've managed to prove TakeStock's point about agents being deceptive and preying on less informed buyers. Q. Why when bidding stops does an agent submit a VB at $200k+ more than the final "real" bid? A. So that when it hits the papers, and the property reverts to private sale, any buyers not at the auction are deceived that the market (as "tested" by the auction) valued the property much higher than the last "real" bid. Unless you were at that auction, you wouldn't know if the VB was $2k or $200k over the last "real" bid, thus skewing the apparent value of the property in the market. Either that or the agent had got the work by over stating the likely price, but then failed to condition the vendor down to a realistic amount, closer to what the REA was advertising the "from" price as. So the VB was perhaps close to an unrealistic reserve price, that the agent had been trying to lower up to the day of the auction? I guess this is probably why you don't like private sales, you're saying that they're to prone to REA deception? In this case, an unrealistic private sale price, inflated by the last auction price, which was a VB. Dave
For a PS all you get is effectively a vendor bid. It could be spot on, 5%, 10%, or even 15+% over market. Very deceptive I say By the standards you are holding auctions to how could this not be "misleading". At least for an auction there was an opportunity to be there and see what if any real bids were given as well as seeing the vendor bid. That's an important extra piece of information for the buyer that they wouldn't get for a PS.
Dude ! For gawd's sake, an asking price above what the market is prepared to pay is not 'deceptive', its just a waste of everyone's time. The market will pay what the market will pay, not necessarily what the vendor wants. I think most of us are talking about gutter tactics used to swell auction numbers and prey on less savvy people before they get to the auction, AND once they are there. And yes, some of the people sucked in are stupid, but that doesn't make dishonest snake oil salesmen bearable. I don't think anyone has said auctions aren't a great way to sell - the issue is when they are run with a lack of integrity, which happens - a lot, in my experience. The only useful piece of information pre-purchase is the official figures for recent settlements of similar properties in the same area for the last 6-24 months. Being at an auction where the property is passed in will only serve to tell you the seller is less smug than they were yesterday, and maybe more negotiable tomorrow. I bet there'll be plenty of them around in 2007 in most markets if they follow your "Auction or Nothing" theory. ;-)
... it's getting a bit hot in here don't you think. VBs are made by the REA on behalf of the vendor, not on behalf of the REA. If anyone is being deceptive (or dumb) it is the vendor, who on accepting the advertised range, decides to make their reserve well above the range.
