Vendor bid auction reform needed: Melbourne buyers' agent call

A high-profile Melbourne buyers' agent has called for the introduction of a limit on the number of vendor bids allowed to be placed at Victorian property auctions.

There is no cap on the number of vendor bids at Victorian auctions.

Buyers' agent Frank Valentic’s call came after he attended a recent Clayton auction where the auctioneer placed three vendor bids.

“Should we allow only one like NSW?” Valentic tweeted.

Peter Mericka, who runs the Lawyers Conveyancing website, has noted previously that the legislation permits an auction to be "crippled" if mutiple permissible vendor bids are used by the auctioneer.

Robert Larocca, the REIV spokesman suggested "auctioneers must make a judgement on what's in the best interest of their client."

Many auctioneers are loathe to lodge more than two vendor bids, one to open and another to close proceedings where buyer interest is restrained.

But last October there were three vendor bids when the West Hawthorn home of former Hawthorn AFL premiership captain Sam Mitchell was passed in at its weekend auction.

The onsite auction opened with a $1.05 million vendor bid. There was then a $1.1 million vendor bid. It concluded with a $1.15 vendor bid.

”Three or four of you have been through three or four times,” said the auctioneer Steve Abbott as he tried to get a bid. It subsequently was sold by Mitchell for $1.18 million. 

In May a Gordon Street, Clifton Hill house was passed in at $980,000 after the Collin Simms auctioneer Antony Woodley placed four vendor bids.

"Unfold the arms, sir," he implored one attendee, but to no avail. It subsequently sold for $1,049,500.

At a late 2010 auction in West Melbourne four vendor bids were placed on an offering with a touted $680,000 selling price. It was passed in at $650,000 and sold a month later at $685,000.

In 2004 the REIV chief executive Enzo Raimondo suggested: "If no one is showing interest, there is not much point using five or six vendor bids."

Industry reform elsewhere to the auction vendor bidding process is already underway following new industry advice that changes how agents conduct post-auction negotiations after vendor bid auctions.

Under the Victorian sale of land regulations, when a Victorian property is passed in on a genuine bid, the estate agent must negotiate immediately and first with the highest bidder.

However what’s not been spelt out in the law is what happens when a property is passed in on a vendor bid.

Common practice, according to a recent report in The Sunday Age, is that an agent is free to negotiate with anyone.

But a legal memo issued by the pro-active Real Estate Institute of Victoria advises its members that free-for-all negotiations was no longer considered best practice.

"[The REIV's solicitor] is now inclined to the view the vendor should negotiate with the bidder whose bid immediately preceded the auctioneer's vendor bid that closed the auction," REIV members have been advised.

“This scenario is more in line with the intent of [the regulations], as that bidder is the 'highest bidder' before the vendor bid is made."

Thus, if a genuine bid is received before the final vendor bid an agent would have to deal with that bidder first rather than throw the process open to all comers.

The advice does not apply if no genuine buyer bids were received during the auction.

REIV data shows that more than 40% of all properties going under the hammer are currently being passed in, with nearly two in three of them on vendor bids.

Chris Vedelago, The Sunday Age's property reporter, noted the advice was sent to REIV members at the end of last month.