The pre-auction offer that moved the auction
Raj at City Realty has a property auction set for Saturday at 11am with a reserve of $1.25 million. Three buyers are registered. On Thursday at 4pm a buyer, not registered, submits a written pre-auction offer of $1.22 million, below reserve. The vendor tells Raj to 'see if you can get more before Saturday'. Raj telephones two of the registered bidders and says, 'Someone has offered $1.22 million - you will need to beat it.' He does not contact the third registered bidder. Raj brings the auction forward to Friday at 5pm. At the auction the auctioneer opens with, 'I have a bid of $1.20 million,' but the bid is a vendor bid and the auctioneer does not say so. The property passes in at $1.23 million. The third bidder arrives on Saturday and is angry.
1. What did Raj do wrong in handling the pre-auction offer, and what is the correct process?
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Raj's pre-auction conduct has three problems:
- He presented the offer but then disclosed its amount selectively. The written pre-auction offer had to be presented to the vendor. Once the vendor instructed Raj to seek more, Raj could tell registered bidders that a pre-auction offer had been made and that the auction was being brought forward. He should not have told only two bidders the exact amount, because that gave them information the third bidder did not have and risked misleading conduct.
- He failed to notify all registered bidders. If an auction is brought forward, every registered bidder must be told of the new time and date. The third bidder was left out.
- He did not get clear written instructions. The vendor's 'see if you can get more' is not a clear authority to bring the auction forward or to disclose the offer. Raj needed to explain the options - accept, counter-offer, or bring the auction forward - and record the vendor's decision.
The correct process is: present the written offer, take instructions, notify all registered bidders of any brought-forward auction, and keep the disclosure even-handed.
2. What are the rules on vendor bids at auction, and what are the consequences of the auctioneer's opening bid?
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At auction, the auctioneer may make a vendor bid, but it must be clearly declared as a vendor bid. Opening with 'I have a bid of $1.20 million' without saying it is a vendor bid is misleading. Bidders are entitled to know whether a bid is from the vendor or a genuine buyer. The auctioneer should have said words such as 'I am making a vendor bid of $1.20 million'.
The consequences are serious: the auction may be challenged, the agency's conduct may be unsatisfactory conduct, and the buyer who lost confidence may complain. The auctioneer should also record the vendor bids in the auction record. If the property passed in at $1.23 million, the agency should preserve the bidding record and file notes. Raj should not try to 'fix' the record retrospectively; he should report the error to the manager and the vendor.
3. What should Raj have done differently from Thursday afternoon through to the auction?
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Raj should have:
- Presented the $1.22 million offer in writing and explained that it was below the $1.25 million reserve.
- Advised the vendor that the options were to accept, make a counter-offer, or let the auction proceed.
- If bringing the auction forward, notified all three registered bidders in writing and by phone, updated the online listing, and allowed reasonable notice.
- Avoided disclosing the exact offer unless the vendor authorised it and it was disclosed to all bidders equally.
- Briefed the auctioneer that any vendor bid must be announced clearly.
- Recorded everything in the file: offer, instructions, notifications, and auction record.
The test is fairness: every bidder should have the same opportunity to participate, and every bid should be transparent.