Do prodava4,
Prodava4,eto ti malko 4etivo za razmisal!
Senator Shane Ross' Submission to the Commission on Auctioneering
In my many years in public life there are two areas of complaint which stand out: the malpractices of bankers and abuses by auctioneers. Auctioneers are the target of so many criticisms that I shall list them in order of apparent importance.
Entry to the club
Auctioneering is not a profession, although auctioneers like to brand themselves as belonging to one. Selling houses is an activity open to anyone who can put up a bond of ?12,700 and convince the District Court of their bona fides. I have yet to discover anyone who has been refused a licence.
I have never heard of anyone being asked by the District Court what other qualifications they possess to launch them into the world of the auctioneer.
Once they have produced the ?12,700 they can practise.
Auctioneers handling money
Auctioneers who have been given a licence are allowed to handle money. There is absolutely no reason why an auctioneer should handle money at all.
Booking deposits
Auctioneers regularly take booking deposits from purchasers of properties in a private treaty sale. These booking deposits have no legal standing whatsoever. Yet many purchasers believe that they give them the right to purchase the property.
Auctioneers use the booking deposit device to secure their commission. They say they are holding the booking deposit on behalf of the vendor, but in effect they never release the money, simply holding onto it as part (or all) of what they regard as their commission. This is a dubious practice.
I know of at least one case where the auctioneer took a large sum (?50,000) as a “booking deposit” from the purchaser without any such instructions from the vendor. When the vendor told him to hand it back there was a difficult dispute.
Booking deposits “book” nothing for a customer. They can be cancelled at the whim of the seller. The buyer has no redress.
Auctioneers acting as so called “independent” financial or mortgage advisers
There is a clear conflict of interest here. Auctioneers selling a property regularly act as financial intermediaries, simultaneously arranging loans for the buyer. This situation means that the selling auctioneer could know exactly how much the buyer has borrowed to purchase the property.
The two conflicts are: firstly, the obvious advantage the selling agent has over the buyer when he knows the financial strength of the buyer. His subsidiary has arranged the loan. He could easily be tempted to push the price of a property right up to the level of the loan in the knowledge that the buyer has been promised finance up to this amount.
The second conflict of interest is worse. Auctioneers are deeply conflicted where they have arranged loans in a private treaty sale. It is in their interest to ensure that the bidder who has borrowed the money through their “independent” mortgage company is also the ultimate buyer. The auctioneer will be given a commission for arranging the loan. So it is in the auctioneers’ interest that the client of their financial subsidiary, not the client borrowing elsewhere (or not borrowing at all) is the ultimate buyer. In other words the auctioneer will gain commission on both sides of the deal, a very dangerous situation.
I see no reason why auctioneers should ever handle clients’ money. Their practice of doing this is obviously open to abuse.
They should not be allowed to raise funds for buyers. This activity is mostly practised by the big firms, despite their being members of the IAVI.
Guide Prices
The Commission will be aware of the guide price controversy. I regard guide prices as blatantly misleading advertising on a colossal scale.
Guide prices of properties are almost invariably BELOW the final sale price. Now why is that?
Auctioneers call themselves “valuers”. Yet their advertised valuations are uncannily nearly always below the final price. This is the price they proclaim to the public or potential buyers.
They tell their selling clients a totally different, much higher, price. Anyone who has sold a property will tell you that the auctioneer has advised them to put in a low guide price to titillate the buying public. This trick will fill the auction rooms; it sometimes embarrasses them a bit when the guide price is so far below the reserve that their valuation looks absurd, but they can usually provide an implausible excuse usually blaming their client’s greed.
The IAVI maintains that it has told members to keep the guide price within 10% of the reserve. So many cases exist of properties being withdrawn at more than 10% above the guide that this rule seems to have been ignored.
A question to the IAVI revealed that there were no cases of disciplinary action being taken against any of its members for breaking this rule. Unless the Commission forbids guide prices and introduces a less misleading way of putting valuations on houses the buying public will continue to be victims of this sharp practice.
The Commission could suggest a total ban on guide prices.
The Commission could suggest that auctioneers should declare the reserve a week before the auction.
The Commission could suggest that auctioneers must stand behind their guide prices. The properties MUST be put “on the market” at a price within 10% of the guide price.
The misleading prices have given auctioneers a bad reputation. Not just as hopeless valuers, but as dishonest practitioners. I believe this charge has justification.
Surveys
Young people and others feel compelled to employ a surveyor on the basis of the guide price. Some buyers are forced to survey up to a dozen houses before they are finally successful purchasers. This could cost them up to ?5000, or even more, in the case of expensive surveyors. The entire property industry has a responsibility here.
I suggest that the vendor of all houses with a guide price should be compelled to commission a survey on the house. This should be made available to all potential purchasers. The surveyor would be liable to the final purchaser who would pay for it. All the disappointed bidders would have incurred no expense.
On a recent radio programme I heard a member of the Commission, Mr Alan Cooke, suggest that the total surveyor’s fee of, say, ?2000, was small in proportion to the ?1m average price of a house sold at auction. Such a suggestion is preposterous. ?2000 is a huge sum for any buyer, especially those who have already incurred solicitors’ and auctioneers’ fees and are up to their neck in mortgage debt.
Sealed Bids
I have come across several frightening cases of auctioneers’ peculiar behaviour in relation to sealed bids. This is the practice of at least one leading member firm of the IAVI.
Sealed bids are a highly dubious practice.
Two years ago I had personal experience of a sealed bid sale. Bidding was apparently going up and up in a private treaty sale. Finally, the auctioneer put the sale to sealed bids. The party of my acquaintance asked to be present at the opening of the bids.
He was refused. He asked if his solicitor could attend. His solicitor was refused.
The bids were opened ONLY in the presence of the auctioneer.
The lower bid won the day! The auctioneer expressed embarrassment but insisted that this was the seller’s wish.
Commissions
Auctioneers have been massive beneficiaries of the property boom. Their commissions are still based on a percentage of the sale price. Yet their workload has hardly increased.
There is anecdotal evidence that auctioneers are running a cartel on commission. Why is it nearly impossible to employ an auctioneer at a level of less than 0.9% whatever the value of the property sale?
If, as the IAVI chief maintains, the average price of a house at auction is now ?1m, the auctioneer will reap a reward of ?15,000 for the same average sale (taking a commission of 1.5%).
This is not bad pay for a three-week campaign involving maybe six public viewings, the preparation of a brochure and the placing of advertising – plus conducting the auction.
Auctioneers have earned huge sums of money for relatively little work. Perhaps they should be compelled to produce time sheets, listing the amount of time spent on work, the amount charged per hour etc. If they are a “profession”, perhaps they should charge “professional” fees subject to independent (not IAVI or IPAV) approval.
Self Regulation
Auctioneers and valuers are self-regulating. Traditionally there have been large numbers of auctioneers in the Dail and the Seanad.
Today there are fewer of them in the Dail than in the past. But there are no less than seven (12%) in the Seanad ( out of a total of sixty members), so they remain a strong, well-placed lobby group.
They have enjoyed a charmed life with very little legislation on the statute books to police their activities.
Self regulation has failed. The trend is against it in the legal, accountancy and medical professions. The number of abuses allowed to continue in the property sector is clear evidence that the IAVI and IPAV have not been overconcerned to protect the buying public from malpractices but have, instead, been slow to act.
On several occasions I have asked people with grievances whether they have complained to the various auctioneering bodies. On nearly all occasions I have received the same reply, that it is pointless.
In my experience the public has no confidence whatsoever in these bodies. They may do very well for their members’ financial interests. They may too have been highly successful in protecting their members practices, but their standing is low in the minds of their customers.
Auctioneers need to be policed and regulated by an “oversight body” ,much in the way that accountants are. The regulating body should be clearly independent. There is no need for such a body to contain any practitioners who sell houses as this would compromise the body’s independence.
Gazumping
I believe that this issue has been adequately addressed by other parties.
Oral Submission
I would be grateful if the Commission was to give me the opportunity to make an oral submission along the above lines in a public, open forum .
Independent Senator Shane Ross.
