I recently attended at an auction and unlike many current auctions, there was no one willing to make an opening bid so the auctioneer opened with a ‘vendor bid.’
I heard the person next to me ask “what does that mean?”
Real estate laws vary from state to state on the specifics, however with the outlawing of dummy bidding (friends or family bidding up the price at an auction when they don’t really intend to purchase the property) any bid made by the vendor (the seller) must be made through the auctioneer, and should be said to be a vendor bid.
Essentially, a vendor is legally allowed to make a bid on the property to help move the auction along -either to get things started or if the auction stalls – and of course these bids should not be used once the reserve price is reached and the property is “on the market.”
If it is not identified by the auctioneer as a vendor bid then it becomes what is really a ‘dummy bid’, which is now illegal.
Different in Different States
In Victoria and Queensland there is no limit to the number of vendor bids allowed while in NSW only one bid can be made on behalf of the seller.
Legislation also requires the auctioneer to announce prior to the auction
Fair Trading NSW stipulates:
“The seller’s bid by the auctioneer cannot be used unless notice of the right to bid is notified in the conditions of sale, which must be clearly displayed and be available for inspection before the auction commences.
When the seller’s bid is made by the auctioneer, the auctioneer must state that it is a ‘vendor bid’ “
Similarly the Victorian Sale of Land Act notes that the auctioneer to clearly identify the vendor bid by saying “vendor bid”
There are often arguments about should vendor bids be allowed and how many should be allowed.
For me it is part of the street theatre of auctions, you need to know how to play the game.
If I’m serious about buying a property at auction and I judge that there is a strong crowd and multiple bidders, in today’s hot market I usually start the auction with by being the first to bid and bidding strongly – just to intimidate my opposition.
On the other hand if I sense there are few other potential bidders I keep quiet and hope the auction gets passed in on a vendor bid.
How I bought 2 properties at Auction
Interestingly over the last few weeks I bought two properties at auction for clients – and used the 2 different techniques:
- The first property, despite being in a top street in great suburb had a dismal turnout at the auction. No one bid other than a vendor’s bid.
Eventually it was passed in and we negotiated a great price (considering the current strength of the market and comparable sales in the street) for our client.
- The second property had a huge crowd and the agent told me he had 5 genuine buyers there.
I bid strongly with a knockout first bid unsettling all but one hardy buyer, but we snared the property for our client using strong bidding techniques (including making my last bid as firm and loud as my first bid) and the psychology of looking him directly in the eye and intimidating him.
I later learned that he was a subscriber to my blog, knew who I was and understood how the team at Metropole helps property investors, and didn’t bother competing with us.
Pity he hadn’t engaged Metropole’s services
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