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With around 2000 auctions a weekend scheduled in Melbourne and Sydney this month, Super Saturday spectaculars could turn into a slaughterhouse for naive, gullible or poorly prepared buyers and sellers.

It’s a jungle in the ‘for sale’ hoardings-draped suburbs of the nation’s capitals, with predators setting traps for the careless or inexperienced.

Industry veterans claim the industry’s worst practices – including under-quoting by up to 60 per cent and dummy bidding – are rampant, despite the threat from regulators of big fines or possible loss of licences.

Most professionals in the industry are qualified, mindful of the rules, work hard and do a great job for their clients. But ???????-industry rules and their enforcement comprise a confusion of competing regulators, loopholes and lax enforcement overseeing real estate agents, accountants, developers, lawyers, financial advisers, self-managed super fund specialists and buyers’ agents.

According to industry specialists, the chances of anyone being pinged for breaches are less than one in 100 and ???????-probably more like one in a 1000, if the number of detected breaches and fines compared with the number of auctions is any guide, despite efforts by regulators to prevent buyers being duped.

Licensing rules intended to provide consumers with protections, such as for buyers’ agents, are flagrantly breached by real estate agents offering their services on the internet.

Forewarned is forearmed in this winner-takes-all world of street auctions. This week, Smart Money asked specialists to pinpoint the seven deadliest practices and how to avoid them.

False bids

Vendors’ relatives, auctioneers’ friends, estate agents or other parties interested in selling the property raise a hand to get the bidding going. The competition can scare off the ???????-genuine bidder and, in the worst case, the property might be sold to a dummy bidder.

False bids are hard to detect. One strategy is to find out who is going to auction a ???????-property – it’s normally scheduled weeks ahead – and attend a few to become familiar with the format and faces. In NSW, all bidders now have to be registered.

Underquoting

This technique is rampant, says buyers’ agent David Koren of Morrell and Koren. Houses are publicly listed at tens and ???????-sometimes hundreds of thousands of dollars less than what they eventually sell for. Sellers do it to generate interest and increase pressure on buyers. It’s unlawful, but cases are rarely prosecuted. Research the type and location of the property to estimate a fair price. If a quoted price sounds too good to be true, it probably is.

The offer that’s not an offer

In the game it’s called ‘conditioning the seller’. An offer well under the reserve is made at an open house. It’s not expected to be accepted – the idea is to condition the seller into being prepared for a lower price. Industry specialists say such offers are often made directly to the seller, rather than the agent, and can be ‘very ???????-effective’. Once again, do enough homework to detect a con. If in doubt, check what ???????-similar properties in the area have been ???????-selling for. Don’t get carried away in the heat of the moment.

Photoshopping and furniture

It’s easy to edit a photo to remove the ???????-towering block of flats next door, the railway line behind, a freeway flyover that over???????-shadows the front fence or the power lines over the house. Also, the right size furniture can make a room the size of a telephone box look like a ballroom. Personally inspect the property and ???????-contact the local council about any ???????-development plans for the area.

Overquoting to vendors

Agents will sometimes promise vendors a price well above market value to secure the property for listing. It’s seller beware. Don’t be flattered into a bum deal.

Withheld offers

Unscrupulous agents might be tempted not to pass on low-ball offers, forcing their ???????-clients to wait for a higher price that pays them more commission.

Exaggerated rates of return

Property investors are offered double-digit rates of return and told that ‘all property ???????-doubles in value every 10 years’. Any night of the week, investors attending property ???????-seminars are being told – usually by a ???????-commission-earning agent – that they will be able to sit back and relax as tenants’ rent pays off their mortgage. If only it was that easy. Spruikers clear regulatory hurdles by ???????-claiming they are providing ‘general advice’ – market speak for a sales pitch.

Case study: Calling in the experts

Mathieu and Eva Durox used a buyers’ agent after deciding the tricks and traps of the real estate market would take too much time and effort to crack.

Mathieu, originally from France, and Eva, from Hong Kong, lived in the inner Melbourne suburb of Camberwell and were looking to spend about $400,000 on an investment property.

Reading, searching the internet and talking to property specialists answered some of their questions, but they felt uncomfortable about committing, particularly as they did not have a car and it was difficult to get around and inspect.

‘We decided we needed an agent that would represent us,’ says Eva.

The agent knew the market and what was available, says Mathieu, an engineer from Paris. He could compare prices and provided insights into fair value.

‘The agent invited us to look at houses and told us we could do better for our money, which was very helpful,’ Mathieu says.

They originally considered Sunshine, in Melbourne’s northern suburbs, believing it would benefit from improved public transport.

Their buyer’s agent encouraged them to consider other suburbs, and they eventually chose a single-storey, three-bedroom, brick-veneer house in the bay-side suburb of Seaford, on the other side of Melbourne. They were attracted by its proximity to a railway station and the beach.

‘We found a house within a month and it was pretty straightforward,’ says Eva, a former journalist with the South China Morning Post.

They plan to eventually subdivide the property.

According to recent surveys, one in three buyers are using, or considering using, a buyers’ agent.


Posted by Duncan Hughes – Australian Financial Review on 15th September, 2014