What is a “vendor bid”? Property investment terms explained

During an auction you may hear the auctioneer making a bid – known as a ‘vendor bid’ – but what does this mean?

Essentially, a vendor is legally allowed to make a bid on the property to help move the auction on. Laws vary from state to state on the specifics, however it is generally acknowledged that it should be made through the auctioneer, and should be said to be a vendor bid.

Vendors do not have to use the vendor bid, but if they do use it then they should not bid the amount of, or more than, the reserve price.

If it is not identified by the auctioneer as a vendor bid then it becomes what is called a ‘dummy bid’, which is illegal.

A vendor may bid for a number of reasons, including to encourage bidding and to increase the recorded price in the instance the property is ‘passed in’ (a practice that was last year recorded to be on the decline in Victoria).

Fair Trading New South Wales explains that only one bid can be made in New South Wales on behalf of the seller.

“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’,” Fair Trading explains.

The auctioneer should also announce this prior to the auction.

In the situation that the property is co-owned and one of the co-owners wants to purchase the property, this is not a vendor bid. They will not be able to make the bids through the auctioneer.

The Victorian Sale of Land Act notes further that it is not sufficient for the auctioneer to merely identify the vendor by name – they should state that the vendor is a vendor.

In Victoria, there is no limit to the number of vendor bids allowed – however, common advice is to keep it to one or two.

In Queensland, auctioneers can accept numerous vendor bids.

The number of vendor bids allowed has previously become a big topic, with some - such as buyer's agent Frank Valentic - arguing that it should be restricted to just one bid in states that allow multiple. He cited an auction where there had been three vendor bids.

Lawyers Conveyancing has been vocal against vendor bidding, noting that if anything it is a counter-offer and buyers should not have to pretend that the vendor is buying as "one of them" wanting to buy their own home.

What are your thoughts on vendor bidding?