Dummy bids at auctions.... a thing of the past - Property, Stock and Business Agents Act 2002 (NSW)

The new Property, Stock and Business Agents Act 2002 (NSW) (Act) commences on 1 September 2003. The Act has introduced a number of significant changes in relation to the sale and purchase of residential and rural property.

Among the most significant of these changes are:

  • the regulation of auctions
  • a cooling off period for agency agreements
  • licensing obligations, discipline rules and disclosure obligations for real estate agents.

This bulletin sets out the effect of the Act on the conduct of auctions.

Reason for new legislation

The government's main reason for the introduction of the Act was specifically to deter dummy bids at auctions and at a more general level to provide greater consumer protection in this area.

"The Act contains a number of penalties for breach of these requirements"

In his second reading speech the Minister for Fair Trading noted:

"The recent explosion of auction as the selling method of choice in a hot property market has enlivened consumers' unease about the fairness of the auction system. A particularly sore point is the time-worn practice of dummy bidding.

Dummy bidding occurs when an unauthentic bidder is planted in an auction to trigger the bidding or drive it up towards and beyond the reserve price. The bill provides a range of measures to deter dummy bidding at residential property and rural land auctions."

Registration and Identification of Bidders

Potential bidders at the auction must submit appropriate identification.

Agents bidding on behalf of potential buyers must produce a letter of authority.

All bidders are required to register and will probably be given a registration number before being able to bid.

Obligations of Real Estate Agents

Real estate agents selling a property by auction must:

  • create and maintain a bidders record for each property sold;
  • must check the identity of all bidders at the auction;
  • register all potential bidders into the bidders record prior to commencing the auction;
  • following registration, give each bidder an "approved consumer education guide" as well as a number or other form of identification that will identify the bidder in the bidders record when he or she is making a bid;
  • not take a bid from any buyer not in the bidders record; and
  • not take a bid from any buyer who does not have an identification number.

To comply with the Privacy Act there are restrictions placed on the use by real estate agents of the information in the bidders register.

Information to be provided to Bidders

The Act requires that bidders receive adequate information as to their rights under the Act. This is to be achieved through the introduction of a standard consumer education guide.

However, the government has yet to release details of the guide and the Department of Fair Trading has advised that its introduction date is still unknown.

Accordingly, real estate agents do not currently have to provide the guide.

Unregistered Bidders

If, contrary to the Act an auctioneer accept a bids from an unregistered bidder that bid will be binding. However, as noted below a fine may be imposed.

Agent/Auctioneer Bidding on Behalf of Seller

An agent or auctioneer who bids on behalf of a seller must ensure that:

  • The contract of sale states that the seller, agent of the seller or auctioneer will be making a bid;
  • At the auction, the seller, an agent engaged by the seller or the auctioneer is only allowed one bid;
  • When making or taking the bid the auctioneer must clearly say that the bid comes from himself or herself or from the seller or agent for the seller ; and
  • Once the bid is taken, the auctioneer must not accept any further bids from himself or herself or from the seller or agent.

Problems with Sales by Trustees

The Act may cause problems with genuine bids from trustees who have put a trust property up for sale by auction, and who intend to buy the property for themselves.

If the Act is applied strictly, it is unclear whether the trustee will be able to bid competitively or whether the trustee or auctioneer will be fined if the trustee bids more than once.

Fines for Breach

The Act contains a number of penalties for breach of these requirements. Real estate agents/auctioneers can be fined up to:

  • $440 for failure to provide the approved consumer education guide;
  • $11,000 for not complying with any of the other rules;
  • $11,000 for using the bidders record other than for registering and recording bids at an auction;
  • $11,000 for accepting an unregistered bid; and
  • $22,000 for not complying with the provisions dealing with agents/auctioneers bidding on behalf of sellers