This week’s SQM Research Newsletter contained some welcome news for those that believe Australia’s property auction system is rigged and in dire need of reform. Here’s SQM’s managing director, Louis Christopher, explaining the changes taking place:
“There have been some big developments in recent days over auctions, which I think is just great news for ALL participants, except those who have been rigging the system.First, NSW Fair Trading officers in that state have been turning up to real estate businesses unannounced and attending 20 weekend auctions, the result of which has been that up to five agents remain under investigation for breaches to the fair trading requirements of the Property Stock and Business Agents Act 2002. Excellent news! It’s been a long time coming. I have no doubt there are certain agents right now who would be sweating over this development. Perhaps while the officers are at the auctions, they can take note of the vendor bid announced, compared to what is been published in the major newspapers.
I also note earlier this month, that a Bill has been put forward by the South Australian Government on advertised under quoting on auctions. They call it “bait pricing”.You can see more here.
This is all about where a vendor advertises a property at a discounted price e.g Price guide: $500K+, which they will not accept at auction. So the Bill, if it passes, would make it illegal for properties to be passed in at a higher price than the reserve, which must be set at no more than 110 per cent of the “advertised price”. I guess the one issue here is that vendors now may decide not to give price guidance in the auction advertising. That’s fine as at least then buyers won’t be misled. Indeed, I would go so far as to propose that the reserve is disclosed no later than 24 hours prior to the auction. No doubt there will be some that will be annoyed I have suggested this. But hey, if the premise on auctions is that you have to mislead others in order to make for a “successful” auction, then you have no moral high ground whatsoever in disputing these more ethical ideas.
Disclosing the reserve allows potential buyers to see how realistic the vendor is compared to the market. If the vendor is willing to meet the market, then there will not be a problem. I see the Real Estate Institute of Australia argues that vendors may not be able to capture any increased interest in the property – “If they have put down that they will accept $500,000 on the day of listing the property, and they’ve had really strong demand for the property, and they’re thinking perhaps we would be able to get $600,000 they won’t be able to do that under the laws,” The REISA’s Ms Slape says.
What utter rubbish.
If there is actual additional interest, then guess what? Those buyers will come along to the auction to bid! Especially if they think the bidding will go beyond the reserve. AND as many point out, there should be NO vendor bidding. It is illegal on sites like Ebay to make vendor bids, so why not in real estate?
So hopefully, these South Australian laws will be passed and other states act with boldness and NOT heed to the nonsensical disputes made by some of the real estate “institutes” that are dead against reform In this part of the industry.”
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
