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This blog helps the property buying community to more easily share strategies, stories and helpful tips. It is an open blog. Anyone can join, contribute and invite others to join.

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30 April 2009

"Vendor's Bid" v "Dummy Bidding" - What's the difference?

This is a common question we hear at Morpheus Property.

In Queensland, Vendor Bidding is permitted at auction, whereas Dummy Bidding is forbidden. So, what is Vendor and Dummy Bidding and what's the difference?

In short, both Vendor and Dummy Bidding occur when someone places a bid on the vendor's behalf. It is usually made to stimulate activity at auction and achieve a higher price for the person selling the property.

The Property Agents and Motor Dealers (Auctioneering Practice Code of Conduct) Regulation 2001 permits Vendor Bidding when it is properly announced and the bid is not made once the price is over the vendor's reserve price (if there is one).
32A Auction conduct—seller bidder
(1) This section applies in relation to a seller of property offered
for sale by auction.
(2) If the seller bids for the property when it is offered for sale,
the auctioneer must announce to the other bidders that the bid
is made by the seller.
(3) Also, if the seller sets a reserve price for the property under
the Act, section 574A, the auctioneer must not accept a bid
from the seller that is higher than the reserve price set for the
Quite similar to Vendor Bidding, Dummy Bidding is where someone places a vendor's bid, however, it is NOT announced to the bidders at the auction. This is illegal in Queensland.

Does Vendor Bidding work as a strategy? Yes! We've seen many examples where it's worked quite well for the person selling their property. This is usually because the bidders are so adrenaline-charged and nervous, they're not quite sure what's going on. In all the excitement, it's often difficult for the average buyer to hear the 'vendor's bid' amongst the high-speed gibberish of the auctioneer.

The other side-effect is where a property is passed in. Let's say there are no active bidders on auction day, but there has been some interest in the property. If a property's worth $500k, an auctioneer can make a vendor's bid of $480k, have the property pass in, then the agent can promote the property as being passed in at auction for $480k. When a buyer hears this, they are led to believe there is demand for the property and the vendor is unlikely to accept anything less than $480k (because the offer was rejected at auction).

The best defence against these tactics is to know the property's value, research auction laws and practices and attend a few to see what usually happens. Write down the bidding activity and critique their approach. After a while you'll start to see what works and what doesn't.

Alternatively, you could spend $880 and have professional representation at auction. Call 1300 727 586 if you'd like someone to represent you at your next auction.

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