I believe that certain real estate practices being conducted on the Gold Coast may be in breach of the Property Agents and Motor Dealers Act (PAMD) and the Trade Practices Act.
These practices relate to promotion and conducting Auctions.
The relevant legislation I will be referring to are;
o Section 154 of the PAMD act specifies the Code of Conduct applicable to a real estate agency or agent.
o Section 231 of the PAMD act specifies the code of conduct applicable to Auctioneers.
o Section 593 of the PAMD act relates to false or misleading representations or statements.
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 7 – Honesty fairness and professionalism
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 9 – Agent to act in client’s best interest
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 14 – Fraudulent or misleading conduct
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 15 – High pressure tactics, harassment or unconscionable conduct
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 18 – Soliciting through false or misleading advertisements or communications
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 21 – Advice about market price or rent
o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 29 – Duty to obtain maximum sale price
o PAMD – Auctioneering Practice Code of Conduct – Schedule 7 – Honesty fairness and professionalism
o PAMD – Auctioneering Practice Code of Conduct – Schedule 9 – Auctioneer to act in client’s best interest
o PAMD – Auctioneering Practice Code of Conduct – Schedule 14 – Fraudulent or misleading conduct
o PAMD – Auctioneering Practice Code of Conduct – Schedule 15 – High pressure tactics, harassment or unconscionable conduct
o PAMD – Auctioneering Practice Code of Conduct – Schedule 18 – Soliciting through false or misleading advertisements or communications
o PAMD – Auctioneering Practice Code of Conduct – Schedule 22 – Advice about market price
o PAMD – Auctioneering Practice Code of Conduct – Schedule 31 – Duty to obtain maximum sale price
Trade Practices Act
o Part V – Consumer Protection of the Trade Practices Act
o Section 52 Misleading or Deceptive Conduct
o Section 53 False or Misleading representations
Auction – Definition
An auction is a form of sale where potential purchasers make competing offers or “bids”, with the person offering the highest bid being declared as the purchaser.
Market Information – Gold Coast
Australian property monitors – Home Price Guide – (Owned by Fairfax which also owns property website Domain) publish auction clearance rates for every major city within Australia. The statistics that relate to adjusted auction clearance rates include properties sold prior to Auction by private treaty negotiation ( Including private treaty sales prior to an auction increases the actual auction success statistic and is misleading the market further about Auction success). Representatives of Australian property monitors attend auctions and contact marketing real estate agents to compile these statistics. They rely in part on real estate agents providing factual auction result information.
The published statistics for the Gold Coast are:
Jan 07 32.6% 49/150
Dec 06 25.0% 14/56
Nov 06 36.0% 45/125
Oct 06 33.1% 53/160
Sep 06 33.3% 38/114
Aug 06 37.5% 51/136
Jul 06 35.8% 47/131
Jun 06 32.0% 41/128
May 06 34.7% 42/121
Apr 06 36.3% 61/168
Mar 06 28.7% 42/146
Feb 06 28.1% 45/160
For a full year on the gold buyers brisbane as quoted by Australian Property Monitors – Home Price Guide there were 1595 auctions and of those auctions 528 sold at auction or prior to auction. This gives an adjusted clearance rate for the full year of 33.1% (528/1595). The real impact of these statistics is to quote the auction failure rate at 66.9%. Just over 2 out of 3 auctions fail on the Gold Coast. (This clearance rate would also include mortgagee in possession auctions which typically sell below market price due to a lowered reserve price expectation)
The legislation specifically points to the responsibilities of agents and auctioneers. These responsibilities make it a breach of the act to make false or misleading communications or statements and for the agent or auctioneer to not work in the best interests of the property owner. If an agency or agent promote that auctions are the best way to sell a property they would be in breach of the act based on the auction clearance rates on the gold buyers brisbane unless they can clearly demonstrate why that particular property would be an exception. If an agent or auctioneer are aware of these clearance rates and cannot clearly demonstrate how a particular property would be an exception, then they are not working in the best interests of the property owner. Clearly 2 out of 3 auctions would require scrutiny.
Advice about Market Price
If the agent or auctioneer provide advice about market price, either orally or written they must be able to substantiate it. The suggestion that an auction would be the best way to determine the market price may be misleading particularly if the highest bid at auction, whether the property sells or is passed in, is significantly lower than the advice provided. Having a final vendor bid, that meets advice to market price will not substantiate that the process of an auction was in the property owners best interest or was the best way to achieve a maximum selling price.
Under the act, an agent has a responsibility to advise a property owner if they believe their price expectations are too high or too low. In the case of too high expectations, agencies do not provide that honest advice, but rather suggest an auction as a process to condition that property owner to accept a lower price then their expectation. This is a dishonest & unconscionable approach that costs a property owner thousands of dollars in advertising monies to simply come to an awareness of a fair market price.
Duty to Obtain Maximum Selling Price
The agent or auctioneer has a duty to obtain the maximum selling price. I don’t believe this is achievable on the gold buyers gold coast for an auction when 2 out of 3 auctions fail. Additionally you have reservations from buyers who are well aware they do not have the same consumer protection or buying conditions at an auction. This reservation from buyers, to participate, particularly at a fair market price, results in a lack of competition at the auction from potential buyers. This situation compounds the inability for an agent or auctioneer to obtain maximum selling price.
Disadvantaged Consumer Protection
Auctions do not provide the same level of consumer protection. No cooling off period exists and there is no provision for conducting a satisfactory valuation or building inspection after purchasing at an auction, which is provided within the legislation for private treaty property sales. Buyers are well aware of this and avoid buying at auctions unless they believe the property is cheap – or the property is in a particularly high demand position.
High Pressure Tactics and Coercion
I have personally witnessed at many a Gold Coast auction, agents trying to influence a property owner to place their property “on the market” and to accept far lower bids for their property then the actual reserve price provided. This is pressure placed on a property owner to accept less, particularly because the property owner is only too aware they also spent considerable money on an advertising campaign that will potentially be wasted. The agent may in fact be recommending selling at a fair market price but if the price were significantly less than the original market price advice any property owner would feel reluctant to sell.
Evaluation of Results
I believe the office of fair trading has a duty of care to evaluate actual sale prices achieved at auction and compare them to the market price the property owner was provided by their real estate agent. Particularly if they were provided this price orally without any substantiating support documentation as is stipulated as a requirement on a 22a Form or with an attached CMA.
Auction Practice in Other Markets
Auctions appear far more successful in other markets in Australia. Melbourne averages 60% or above. Of the 7 major areas reported by Australian Property Monitors, the Gold Coast consistently reports the lowest clearance rates. Brisbane performs poorly as well with an adjusted clearance rate of 43.3% (621/1432) for the 6 months preceding and including January 2007.
Saturday 31st March 2007 – Gold Coast Bulletin
On this date, the following numbers of auctions were advertised in the Gold Coast Bulletin.
Agency No of Auctions No of Advertising Pages
Ray White 89 35
Professionals 24 6
LJ Hooker 26 4.25
Harcourts 13 3
Coldwell Banker 5 2
First National 5 0.5
PRD Nationwide 2 0.5
Raine & Horne 2 0.25
Elders 2 0.5
Wentworth 5 1
Independants 8 3.25
TOTALS 181 56.25
Average Page Cost $4,500 – Estimated Advertising Spend $253,125 – Average spend per auction/week $1,398.48 – Average weeks for auction ads 4 – Estimated Auction cost/property $5,593.92