Understanding Dummy Bidding in the Real Estate Bidding Process

Recently in Victoria 160 real estate agents were fined almost $2 million for sham auctions? Will this stop agents from sham auctions? Of course not! And if you are reading this article, then either you have just come from an auction and suspect that you have been scammed, or you are a REA who is thinking “is it worth it”? So let’s find out.

How exactly do agents scam buyers at auctions?

You might think that fake auctions are just fake guys in the room shouting out bids to get you to pay more. But in reality, real estate auctions are much more nuanced. The problem is that most of the time, agents walk a fine line of the law, and no one will ever arrest them. These are just the rules of the game that you should know.

Below are a couple of scenarios of how you can get scammed at an auction.

Scenario 1: The bid is placed for you

How do you like the story about the guy from Brisbane who decided to take part in a telephone auction just to see how it works, but unexpectedly the real estate agent placed the bid for him? This is a scenario where miscommunication works against you. You make a noise or gesture that can be interpreted as a bet and off you go!

Alternative: the agent tells you on the phone that someone has raised the bet by 10k when in fact no one has raised anything and it’s just a way to get you to take action.

Scenario 2: Seller and agents extort money

The truth is that the seller is interested in the auction bringing the maximum bid above the market. Even if you win the auction, it doesn’t mean that the house is already yours. How about this family who won the auction, but faced pressure from the seller and agents who wanted to force them to buy the house for $50k above the market, claiming that there was a competitor somewhere who “was about to beat the market”.

Just in case, here is another similar story.

While the seller cannot legally challenge the results of the auction if the price reached above a certain threshold, no one prevents you from setting the reserve price as high as possible. And you cannot know this price in advance. This is a classic fake auction!

Scenario 3: Manipulating the “vendor bid”

A special case of the scenarios described above is the use of the “vendor bid” to manipulate the auction. By law, the seller can add his bid if it is below the reserve price, but in fact, the real estate agent is not obliged to tell you when it is the seller’s bid and when it is another bidder’s bid. As a result, you may face pressure, as if somewhere behind the scenes there is a buyer offering a higher bid, although in fact it is just the seller trying to squeeze more money out of you.

Scenario 4: Agent “confidentially” tells you the reserve price

If an agent tells you the exact reserve price before the auction starts, it doesn’t necessarily mean that they want to help you. Here is a small example of this problem.

Obviously, this is a legal gray area. Should agents be guided by the market when setting prices? Of course! Do they do that? Haha, don’t make me laugh.

Scenario 5: Agents Create a Sense of Competition at an Auction

Imagine a seller wants to sell a house for $1,200,000, but to create excitement, agents set the price below a million. If you go to such an agent and say “hey, you scammed me!”, they will say that they are just trying to make an offer profitable and this is a standard marketing strategy.

In 2021, Fletchers Blackburn and Canterbury was fined $880,000 for such fraud. Does this mean that others will stop doing this? No. It is significant that in this example, the agency was caught mass manipulation of 22 properties. In fact, this is a signal to other agents: stop at the 21st, do not be so greedy.

There is a flip side to this story: sometimes agents are tied if the seller is determined to sell the house above market at all costs. In the end, they will only lose their reputation.

How to fight fake auctions?

The answer is banal and, for some, disappointing, but the main thing you can do is to put pressure on the REA reputation, as well as conduct video and audio recording of what is happening. As practice shows, this works.

Many people think that the presence of reviews on the Internet for an agent is his way of charging more for his services, but the truth is that this is also your protection: if the agent has a reputation, then you can put pressure on it if something goes wrong.

How can Radius Suburb help?

A fair auction requires meticulous analysis of the local market. For over a decade, we have been helping honest real estate agents make the correct market value and attract buyers with real listings. If you consider this for yourself, we recommend that you familiarize yourself with our services here.