Property

Buyer Beware of the Dummy Bid

Buyer Beware of the Dummy Bid

Watch out for the “dummy bid”

Spring is well and truly upon us, which also means the busiest real estate season. In Victoria, auction and sales volume can increase by up to 30% from Winter.

Buying a home is an exciting thing, even if interest rates are at their highest for over a decade.

However as with most things in life when there is a lot of money at stake, there are some bad actors who don’t play by the rules.

One mode of trickery you should be alert to is dummy bidding, which is the practice of a vendor or agent introducing fake bids during a sale process – whether it’s an auction or more private negotiation – to drive up the property’s ultimate sale price.

Such dubious tactics aren’t just frowned upon; they’re illegal. In Victoria, dummy bidding was outlawed many years ago, and the relevant legal protections have been bolstered in more recent times, including by the Sale of Land (Public Auctions) Regulations in 2003.

Just because it’s illegal, it still happens…

While the law may be clear on the prohibition of dummy bidding, examples of it are still rife on the grape vine.

A recent tale from Melbourne’s posh bayside area tells of an agent duping the sole interested party into believing there was another eager buyer to create a fake bidding war. This may have cost the buyer tens or hundreds of thousands of dollars.

The crux of the problem lies in the difficulty of enforcing the rules, because proving a dummy bid has happened can be tough. Sellers, if they are aware of an agent engaging in the practice, are unlikely to report it because they have such a vested interest in the property being sold at the highest price they can fetch.

The same can probably be said for agents suspecting vendors of it, along with the reputational collateral damage they risk being associated with any such incident.

As a property buyer, what can I do stop any dummy bids?

Depending on your circumstances, you should consider getting independent legal advice in any scenario where you suspect dummy bidding is affecting your position. However a couple of ideas worth considering if you think dummy bidding is interfering with your attempt to purchase a property:

  1. For a low-key approach, speak with the agent calmly and convey your doubts about a particular bid. While privacy laws might prevent them from sharing some information, you would hope an agent would be happy to provide some further context and maybe even some anonymised evidence to address your concerns.
  2. The next level, especially if you’re at the pointy end of a private sale process where a dummy bid could be the difference between tens or hundreds of thousands of dollars, might be seeking a statutory declaration from the real estate agent regarding the legitimacy of the bid. This would really make the agent hot under the collar if he or she’s been dishonest, given the serious consequences that can come with making a false statutory declaration.

So in this Spring property season, yes by all means embark on any buying exercise with a sense of excitement – but also remember that not everyone plays by the rules. And be ready to protect yourself!


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