This piece, by buyer’s advocate David Morrell, first appeared in
Eureka Report:

Despite the best endeavours of several state governments, the
legislative changes that have occurred across Australia have not
worked. The consumer is still unprotected when participating in the
auction system. The simple fact remains that when large amounts of
monies are involved, people will cheat.

In the past it was the estate agents who colluded and orchestrated the
dummy bidding. Now, as a result of the legislative changes, nine times
out of ten it’s the vendor who is the culprit with the agents turning a
blind eye, not wanting to know what is really going on in case they get
“pinged”. Yet so often I hear about the “mystery bidder”, who the agent
has never seen before, who miraculously pulls up just short of the
vendor’s reserve.

Has anyone really got caught? Consumer Affairs Victoria, for example,
has over the past 18 months had its own inspectors attending auctions
and with more than 1,000 auctions each weekend, they haven’t caught a
single dummy bidder.

Similarly in NSW, where prospective bidders have to register, no-one
has been caught. Can an industry of known rogues become truthful
overnight? It’s very easy to get your best friend to register and bid
furiously to just below the reserve price. The states cannot prove
whether or not your associate had any intention to buy the property.

Even the ACCC has tried to put its imprimatur on the auction process.
Chairman Graeme Samuel publicly stated that he would fine any
individual or company $200,000 or $1,000,000 respectively if it could
be proved that they colluded in dummy bidding. They, too, are yet to
have a successful prosecution.

Each weekend I see evidence of dummy bidding. Although it’s not as
outrageous as it was years ago, it’s now more orchestrated and harder
to spot. Realistically, it could be argued that up to half the auctions
across the country have some form of dummy bidding. The scary part is
that 90% of buyers believe it doesn’t happen. How could it still go on
if the auctioneer announces that it’s illegal? they ask. Because the
auctioneer then proceeds to take a dummy bid.

For some vendors it’s a simple mathematical exercise. If you can push a
buyer up by $300,000 and, if you get caught, face a fine of $25,000
then it’s a good business transaction. This is especially poignant
given that it’s a 100,000 to one chance of being caught, and that
no-one has been caught yet. Rural auctions are a classic example. How
many
actually get sold under the hammer? Usually there are two or three
parties bidding furiously and not quite reaching the vendor’s reserve.

Will it ever disappear? Unfortunately no. It’s part of the Australian
culture and real estate agents, known for their quick thinking, will
always find loopholes in legislation.

If you are bidding at an auction, challenge the authenticity of your
rival bidder. Speak up and ask the auctioneer whether a suspicious bid
has been placed on the vendor’s behalf? It’s a question worth asking …
watch for the red faces. Suddenly you could find yourself bidding
alone. And if you are there to buy the property, remember auctions are
a contact sport. You’re not there to win friends, and informed bidding
with authority could save you hundreds of thousands of dollars in the
outcome.

Peter Fray

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