REIV Provides Misleading Auction Advice

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

In his regular propaganda column in the Domain section of The Age newspaper, the CEO of the Real Estate Institute of Victoria (REIV), Enzo Raimondo, pretends to inform consumers about the auction myth. Asking the question, "Is it sold after the hammer falls?" Raimondo casts the question as one relating only to the right of the vendor to sell or not to sell after the fall of the hammer. He is very careful not to alert purchasers to the fact that they too can expose the auction as a nonsense by refusing to sign the contract after the hammer falls.

Real estate is NEVER sold at auction

The first point to be made about real estate auctions is that they are not true auctions. When the auctioneer yells "Sold", and hits his hand with the rolled up unsigned contract, he is telling a lie. There is no enforceable sale at that point, and either party can simply turn on their heel and walk away.

Sure, there is silly legislation that says that a real estate agent cannot accept further bids after the auction, but this does stop a vendor from ignoring the auction result and selling to someone else who offers a higher price.

Raimondo is careful to ignore the fact that some vendors will not be pushed into a sale on terms that are not acceptable to them. He observes,

"The vendor may have decided they don't want to move after all, or they would like a longer settlement than that offered in the contract, or they are unable to agree on terms with the highest bidder." (Enzo Raimondo, Domain, the Age, Saturday 8 May, 2010 p.3)

Sure, these are reasons why a vendor may not want to sign the contract after the auction is over. But there is a much better reason why the vendor may not want to sign. It is possible that after the auction another purchaser has offered the vendor more for the property.

When a new bidder offers more

What is a vendor to do when the auctioneer has hit his hand with the unsigned contract, and shouted "Sold" at the highest bidder, only to hear someone else call out, "Wait a minute, I'll pay another $10,000."

As Raimondo points out,

"The laws in Victoria sensibly prevent an auctioneer taking any bids once the property has been knocked down to the highest bidder but they do not compel a vendor to sell."

In other words, the law is a nonsense, and its only real function is to encourage real estate agents to deceive their own clients.

Estate agents encouraged to deceive vendors

The real estate agent is not allowed to take any more bids, but the vendor can. This silly law simply encourages real estate agents to mislead their vendor client into believing that no further bids or offers can be entertained. For this law to work, the real estate agent must ensure that the vendor remains unaware that further bids and offers can be dealt with.

In most cases the real estate agent will attempt to ensure that the property is sold for the lower auction price to the successful bidder, and may even falsely advise the vendor to ignore the late-comer. This will save the integrity of the auction, and will save the real estate agent from embarrassment, but it is not in the vendor's best interests.

The vendor is entitled to trash the auction, ignore the highest bidder, and to sell the property to the late-comer with the deeper pockets.

Purchasers can also refuse to buy

Raimondo's article was very careful to avoid letting on that purchasers are just as entitled as vendors to refuse to sign a contract after the auction has finished.

A purchaser who has second thoughts about buying can, at any time prior to signing the contract, simply walk away. Consider this scenario:

The successful bidder begins to walk to towards the auctioneer with a view to signing the contract. As he does so, someone from the crowd calls out, "You didn't mention the asbestos problem, you didn't tell these people that they can't fix it and that's why they're selling." The purchaser, having heard this, asks the auctioneer about it, and the auctioneer informs the purchaser that there was never any obligation on the part of the vendor to disclose the fact that the property is full of unstable asbestos. The purchaser refuses to sign the contract, gets into his car, and drives off.

What can the real estate agent do in such circumstances? Nothing. However, not all real estate agents will simply allow the purchaser to walk away. Consider following account of an estate agent who was not prepared to see his auction spoilt.

Tim Fletcher is one of Melbourne's best known real estate agents. He was regularly heard on Melbourne radio (until he was recently dumped), and he regularly preens himself on tabloid television as a real estate expert.

In an article in Melbourne's Herald Sun newspaper, Tim Fletcher is quoted as follows,

"We had this case of a fellow making an opening bid and it was well above what anyone was thinking - about $100,000 over. He was buying for his pregnant daughter. I sold the place to him but he started yelling and carrying on saying, "I'm not paying. I'm not buying it."

I chased him and his daughter up the street and she almost had the baby. She was a week off and I was afraid it was going to arrive.

She was in tears. The man had realised he'd made a terrible mistake and should have gone along with the flow rather than trump everyone with a big bid.

I said to him, 'You bought the property' and I threatened to get the police.

In the end he came in and signed up but it took three quarters of an hour."

Disgusted by this account, I wrote to Tim Fletcher and asked him to answer a few questions. A letter from Maddocks Lawyers, on Fletcher's behalf, threatened a defamation action, stating, "The newspaper article upon which your statements are purportedly based was not itself correct." However, a follow up letter in which I sought elaboration on this was politely ignored. I am not aware of any legal action having been taken by Fletcher against the Herald Sun newspaper or the journalist who wrote the article in which Fletcher was quoted.

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