Clampdown on house-auction phantom bids

By ANNE GIBSON

Phantom bidders at auctions will be exposed under new ethical standards proposed for real estate agents.

New, agent-initiated rules will ensure dummy or vendor bidders declare themselves, making the sale business more transparent.

Dummy or vendor bidding is not illegal in New Zealand. It happens when a representative of the vendor or real estate agent bids for a property at an auction to drive up the price.

Bids can come either directly from the auctioneer or from a person planted in the crowd as a phantom bidder.

Real Estate Institute president Graeme Woodley said a draft code of conduct had been sent to the Commerce Commission. It follows moves by the commission to protect the public from unscrupulous practices.

Commission fair trading director Deborah Battell said it was not the commission's role to comment on or approve the new rules, but the code was "a step in the right direction".



Mr Woodley said: "It's a matter of disclosure and at the outset of the auction, the auctioneer should disclose that he has the right to bid on behalf of the vendor.

"For example, the auctioneer would say, 'I will start the bidding myself at $150,000 ... ' "

Alternatively, the auctioneer would identify a person there bidding on behalf of the vendor.

Mr Woodley said the institute planned to implement the code once agents had seen it.

The institute's moves are in line with the Victorian Government's ban on dummy bidding, introduced in October to overhaul Melbourne's house-selling system and impose fines of up to $65,000 on real estate companies that break the law.

In this country, a Christchurch case against Grenadier Real Estate, trading as Harcourts Grenadier, is being carefully observed by the industry for the impact it could have on the auction process.

The case concerns the auction of a historic Lyttelton house advertised for $110,000 when the vendors had set a $235,000 reserve.

The Commerce Commission investigated and decided to seek a declaratory judgment from Justice John Hansen in the High Court at Christchurch over whether buyers were misled.

During the case this month, the vendors said the only bidder at the auction on November 30, 2000 - attended by 35 people - was the auctioneer, Derek Smith, so none of the bids was genuine.

But Garth Gallaway, for Grenadier, said Mr Smith was entitled to bid on behalf of the owner and the commission was trying to undermine the auction process.

The case centres on whether people could be deceived into thinking there were genuine bids. Justice Hansen has reserved his decision.

Grenadier Real Estate admitted two contraventions of the Fair Trading Act:

* Breaching section nine by advertising a property for sale by auction with the words "bidding from $110,000" when the property could not be bought at a price near that figure.

* Breaching section nine by advertising that, at auction, bidding for the property had reached $190,000 when all bids were the vendor's bids.

But the company denied there was any attempt to mislead buyers at the auction.

Mr Woodley said two further codes would be prepared next year - one setting new standards for property sales by tender and the other on advertising.

The tendency for properties to be sold before the closing date for tenders was leaving some buyers disillusioned.

Mr Woodley said 76,092 properties sold last year, most without problems.