Are Property Auctions Illegal?

An auctioneer first stood in front of a crowd in 500BC - selling the women of Babylon for marriage to the highest bidder, proceeding in order from the most attractive to the least (with extras - a dowry - thrown in as you got down the list). The sales method progressed over time to being used to sell the bounty of war, art, livestock, and more recently to distressed property (mortgagee sales) and now to non-distressed home sales.

While still not the major method of selling real estate it gains high publicity and has certainly been gathering attention in the media lately, for example here.  Part of the attention comes from the show that auctioneers put on, part of it from the profile agents gather from the heavy advertising investment normally associated with an auction property, and part certainly from the promotion real estate agencies do of the technique - often their preferred selling method (see the Real Estate Institute touting an 80% increase in auctions here).

But the world has moved on from the time of Herodotus and real estate sales and auctions are governed by among other things the Real Estate Agents Act 2008. Under those rules there is a case to argue that property auctions run the way they are today are not in compliance with the Act and Code of Conduct in two related areas - specifically do auctions:

1. Apply undue pressure on the seller and/or buyer (rule 9.2)?
2. Allow the opportunity for seller/buyer to take adequate (legal and/or technical) advice (new rule 9.7)?

Lets be clear, auctions are designed to create pressure on buyers and sellers - a defined timeframe, specified terms of sale, and a predetermined date of (hopeful) sale. All of this comes to a head in the auction room, ideally with determined, competitive bidding, in full public view. 

If you have been to an auction either onsite, or at a meeting room for multiple properties at a single event, you will normally see the rent-a-crowd in attendance, a herd of agents, sellers and, hopefully, lots of potential buyers. In other words a good number of people - it is a public event widely advertised and agents love to have plenty of people along to see the show. Auctions are promoted as transparent because they are done in public, but it is a pressure environment with the crowd often applauding when a property sells and a deathly silence when it is passed in (not sold).

Bidders are encouraged to increase their offers, reassured when there is competition that their decisions are validated by other buyers and after all "it’s only money".

So, how is it that pushing for a contract to be signed at 9.30pm at night undue pressure and forcing a instant decision to bid or not in front of a crowd of people with hyped up real estate agents hanging around you and a professional auctioneer egging you on, doesn't reach that threshold?

What about the seller? It hasn't reached reserve, but there have been bidders. Time for the auctioneer/sales manager conversation - often in the auction room, "well there you are, you have spent all this money on advertising and the market is telling you this is all it is willing to pay. That is the best we can do today - you can either accept the price offered or stay on the market for I don't know how long more  - what would you like to do? How about you put the property 'on the market' we could get additional bidding to get the price higher (even though we haven't reach your reserve)".

How is it sending frequent text messages undue pressure and having to make potentially the most significant financial decision you will ever make in a public area, instantly, with everyone watching on is not?

One example commonly quoted of auction success is the bidder paying more than they intended because of the competition in the room. Someone is being actively encouraged to bid beyond where they had objectively determined market value was, without the opportunity to take professional advice - hang on, hasn't the situation changed? Isn't something different? Something new? Isn't that the very time you should be taking advice?

Someone walks in off the street and buys at an auction - it does happen, normally because they see a real bargain that they can't let go. Where is their opportunity for professional advice? So, are the rules going to have to change? Only registered bidders, which closes several days prior to the auction event so they have the opportunity for advice and input? Still doesn't solve the auction day dilema though.

Once the auction is underway there is no practical opportunity for the buyer or the seller to step back, take a breath and seek advice. The process does not allow that - you are pressured to make the decision there and then. 

Auctions are designed to create pressure and force a decision by sellers and buyers. When does that step over the line? When is the REAA going to turn its attention to the sales methodology? It can’t be far away. Just because it has been done that way for a while doesn’t make it right - after all throwing your spear into the ground on Queen street and taking bids on womenfolk wouldn’t be acceptable today now would it!