New rules will make the auction system fairer for buyers in Victoria and New South Wales (NSW) – but will they make buying a home any easier?

For decades, home buyers in the auction capitals of Melbourne and Sydney have struggled against what many claim were misleading and unfair practices. Many complained that widespread dummy bidding and over/under quoting had turned home buying into an exhausting battlefield.

Now relief is at hand. New laws in Victoria and NSW are delivering power back into the hands of home buyers by outlawing dummy bidding, restricting vendor bidding, regulating who can bid at auction and curtailing under and over quoting.

Says Kareena Ballard, President of the Real Estate Institute of Australia (REIA): “The REIA welcomes initiatives that promote consistency in real estate practice by stamping out unethical behaviour such as property scams and dummy bidding. We support transparency, including conditions of auction being clearly publicised before the auction, and detailed by the auctioneer at the start of the auction for the benefit of consumers. This will help promote consumer confidence and harmonize nation-wide real estate practice.”

No more auction dummies

A key reform in NSW and Victoria has been the outlawing of the widespread practice of dummy bidding.

Dummy bidding is defined as fictitious or false bidding at an auction by non-genuine bidders in the crowd, with no real intention to buy the property and without adequate disclosure of their interest.

Vendor bidding, by contrast, is a legal process whereby a counter bid from the auctioneer or other identified and permitted person is placed to ensure a property reaches the reserve price.

What the new laws mean

Both NSW and Victoria have recently introduced new auction rules. In NSW, the emphasis has been on making the auction system fairer, more transparent and easier for buyers.

• Estate agents can be fined up to $22,000 for quoting prices that cannot be justified
• Dummy bidding outlawed
• Bids at auction can only be accepted from registered bidders. Bidders must provide identification and be issued with a number to be displayed during the auction.
• Only one vendor bid allowed during the auction. Vendor bids must be identified as such.

The NSW Department of Fair Trading has employed 40 investigators to enforce the new laws.

In Victoria, legislation due to come into effect on 1 February 2004 outlaws dummy bids and restricts vendor bidding at auction. Those caught making undeclared vendor bids face fines of $24,000 to $60,000.

The legislation also curtails the widespread practice of under and over-quoting by requiring estate agents to quote within a 10% price range.

What it means for buyers

Consumer groups have welcomed the crackdown on auction antics, saying the new laws remove much of the uncertainty from buying at auction.

Victoria’s Consumer Affairs Minister, Christine Campbell, said the outlawing of dummy bidding make Victoria a leader in real estate practices.

Dennis Kalofonos, a Sydney-based buyers’ advocate, told the Sydney Morning Herald: “All of a sudden a little bit of power has come back to the buyer. It will take a little bit of that auction frenzy out of the market.”