Frustration with auction process boils over

With auctions being the most favoured method of sale by real estate agents and close to 1 in 4 of all Auckland properties being sold by auction, the casual observer would think, that was going on in the Auckland property market was a highly efficient representation of a perfectly functioning market.

That may well be the case with many of these property sales. However as was brought to my attention by a recent communication from a highly frustrated buyer; the process of buying at auction can be so fraught with frustration and concern over professional practices that in the case with this specific buyer, it can lead to a decision that enough was enough and they are not going to attend any more auctions in the search for their new home.

I want to highlight the details shared with me by this buyer to bring to the fore questions about auction practices and give voice to this buyer as a process of informing others.

Naturally, the buyer in question desires to remain anonymous for as they say “We don't want (to make) enemies when trying to purchase our next home.

While you may not agree wit the thoughts and beliefs of this buyer or you may not think their circumstances are representative, I would like to say that I have verified the authenticity of the person. I do recognise that this is but one incident from many hundreds of auctions transacted each month. However from my personal experience and comments from others both from within the industry and outside I don’t feel what is voiced here is a completely unique experience.

My intention in bringing this to light is to hopefully to encourage others to share their experiences in alignment or in contrary position to this buyer.

The story
The buyer states that they have been active in looking for an Auckland property for the past 9 months and by their own judgment they are exhausted.

They attended an auction recently, not their first such auction as they state that they have attended close to 50 auctions and feel that they are a bit depressing.

This buyer was the only bidder on the property and made the first bid. Without any other bidders the auctioneer entered a vendor bid.

A follow up bid was made by our buyer. At that point one of the agents in the room went up to a couple in the corner and spoke to them for about two minutes while the auction paused. The next action was that this second couple in the corner placed a bid $25,000 higher.

Our buyer recognised this as a competing bid, but there was a concern that there was something slightly suspicious given the length of the pause in the proceedings. Our buyer responded and raised their bid by $10,000 and the agent went back to converse with the other couple and got them to raise by another $25,000.

Then things got very strange.

Suddenly two other agents swarmed around our buyer and started ‘in our face non stop pressuring’ to raise their bid by another $25,000.

Our buyer was prepared to bid again but offered a further $10,000, not the $25,000.

The auctioneer refused the bid stating that the minimum was $25,000!

At this point our buyer decided to back down. The auction was passed-in with the other couple not raising their bid.

The actions of the agents as judged by our buyer had caused, what they felt was undue pressure. They felt that the auction had been staged to bring the other couple into the process just to raise the bidding. They felt that the agent’s actions in applying pressure on them was judged to be highly irritating and tantamount to bullying. The property passed-in with the strange couple being the highest bidders who were not then successful in negotiating.

Our buyer felt that there was no other serious interest in the property apart from themselves and in their opinion the other couple were brought in to artificially hike the price, so that the agent could go back to the market and say there were buyers willing to pay $x to buy the house.

To support this view the buyer states that the day before the auction the agent had said they expected four active bidders. On the day of the auction in the morning they said there were 3 active bidders. Moments before the auction just as they were going in our buyer again asked how many bidders there were? The agent was in their words coy about it, stated ‘yourselves’ and we expect to see others come in shortly.

After the auction the buyer states that the agent treated them like "you have served your purpose, you took it up to a stage, now I can negotiate with that as a base to the wider market and don't require you, bye". Not even a single thanks for coming to the auction. Our buyer felt the whole process was more about how much more can the agent can squeeze out of them.

The whole thing, atmosphere, behaviour and everything about the event just made them cringe and plagued them for the next day before they wrote to me. As they said “I just cannot get yesterday out of my head, it was just bizarre beyond belief”.

The buyer recognised that they had nothing to back up their suspicion other than a gut feeling and the feeling of something not being totally right about the way the auction went. They definitely felt that in that moment they felt trapped, cornered and under pressure to compete against a bidder whom they had a suspicion was not a real bidder (the only other bidder).

What to do?
The buyer asked me what should they do?

My response was to state that the industry is governed by the Real Estate Agents Authority (REAA) who spell out on their website the procedures open to you to complain about any person involved in real estate. You could complain to the real estate company who held the auction or the REAA direct.

As I read the REAA code of conduct the agents involved in this auction breached clause 9.2 which states "A licensee must not engage in any conduct that would put a prospective client, client or customer under undue or unfair pressure" Certainly from their description I believe that this buyer was put under pressure. I think also the pressure for them to bid by $25k when the auctioneer had accepted a $10k incremental bid by them just before, again could be interpreted as undue pressure.

I think this situation highlights some concerning aspects of the auction process:

1. The event of an auction is highly charged and highly pressured. Agents defend this in stating that their role is to represent the vendor and seek the highest price, however I think there should be a professional duty of care to ensure that auctions are not unduly pressured affairs and that ‘breathing time’ be allowed. A normal negotiated sale allows buyers and vendors to consider the process and their offer. The auction process has become so mechanized that agencies try and cram 20 auctions into an hour in a packed auction room – is this fair or appropriate?
    
2. The manner of agents “circling” bidders to try and illicit bids and to encourage speedy decisions I think is inappropriate.  A bidder should be allowed space and privacy to reflect and consider. If they choose to have professional help then that is fine but agents (all of whom) are on the side of the vendor hustling buyers is not appropriate.
    
3. Vendor bids should be eradicated. The purpose of an auction is to in one place and at one time gather together willing buyers to bid in a public and open manner. The interjection of what is called a vendor bid (even if it is publicly announced) is irrelevant at best and massively confusing at worst. If the competitive bidding by the assembled buyers does not see the bidding reach the reserve then the property should be passed-in (allowing recourse to the vendor) – the auctioneer throwing up vendor bids never changes the outcome.
    
4. Bidders at an auction should be required to register and be assigned a visible number through which they bid. This would improve professionalism and ensure that the agents and vendor has the benefit of knowing how many active bidders there are and who they are. This component of due-diligence would instantly remove the doubt created as in the scenario outlined above.

The fact is that auctions can be an effective and valuable process for selling real estate as is demonstrated not only in NZ but around the world, however I think that the whole market of auctions has got ahead of itself and as I wrote recently got out of hand, with a sense of a production line fueled by real estate agents seeking to hype the market. A cool head whilst all around them seems to be in heated turmoil would be good to see within the real estate industry – please!

Former Realestate.co.nz CEO Alistair Helm is founder of Properazzi.