Auctions are a popular means of selling real estate, particularly when demand is high. As a result of the boom in real estate commencing in the 1990s and the strong sellers market this reflected, a range of practices arose which were detrimental to consumers. These included practices such as ‘dummy bidding’ at auctions (which is now prohibited), over quoting by agents to secure listings and under quoting of properties well below the actual selling price (‘bait’ advertising).
Since 2014, measures have been taken to address ‘bait’ advertising, including additional measures prohibiting representations as to the likely selling price that must not exceed 110% of the price agreed with the vendor. In addition, an agent must not represent the likely selling price using words or symbols - for example, expressions such as "$400,000+" or "mid-$400,000's" are prohibited. See S24A(2) of the Land and Business (Sale and Conveyancing) Act 1994 (SA).
The legislation governing auctions is contained in the Land and Business (Sale and Conveyancing) Act 1994 (SA) and the relevant provisions are discussed below.
Dummy bidding occurs when real estate agents plant employees or friends to pose as bidders during an auction in a bid to create the impression of competition and drive the price up. A further variation on this has been for auctioneers to take bids from non-existent bidders. Responding to criticisms that such behaviour is misleading and deceptive, the legislation in South Australia has been amended to ensure greater transparency of the bidding process.
Under section 24N of the Land and Business (Sale and Conveyancing) Act 1994 (SA) a person cannot make a bid on a vendor’s behalf nor can an auctioneer take a bid if he/she knows that it was made by the vendor. Similarly an auctioneer is prohibited from suggesting that they have taken a bid at auction when in fact no bid was made. The maximum penalty for an offence under this section is a fine of $20 000.
Under section 24O a vendor may make up to three bids provided the following conditions apply:
- the conditions under which the auction is conducted permit the making of vendor bids, and
- before commencement of bidding the auctioneer announces that vendor bidding will occur, and
- immediately before such a bid the auctioneer announces the bid is a vendor bid, and
- the amount of any vendor bid is less than the reserve price
All prospective bidders at an auction must be registered before bidding and an auctioneer is prohibited from taking a bid from someone who is not registered. From January 2014, all bidders are to be identified by a unique identifier, which may be a number, letter, colour or some other unique identifying feature [see s 24K]. When a bid is taken the auctioneer must audibly announce the bid as having been taken from a bidder using the unique identifying feature. Failure to comply with S24K may result in a penalty of up to $10,000.
Collusive practices at auctions
It is an offence for a person to induce, or attempt to induce, any other person to abstain from bidding or limit their bidding at auction or do anything that prevents a free and open competition at auction [see s 24L]. The maximum penalty for this is $20 000. A person who themselves abstains or limits their bidding at auction as a consequence of collusion is also guilty of an offence for which the maximum penalty is $20 000.
An agreement or understanding under which one person will allow another to take over as the purchaser on making a successful bid is also prohibited as collusive practice under this section.
There are further offences prohibiting bidders from knowingly preventing or hindering any other bidders from participating at an auction under section 24M which attract a penalty of up to $20 000.
Consumer and Business Services provides a range of information and publications for vendors and purchasers of property.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.