Friday, March 21, 2008

Going, Going, GONE! Rented To Claude Raines!

Following up from my previous entry.

I spoke to a guy the other day and we discussed the rental crisis, in particular the concept of rental auctions. "But," he said, "this has been around for decades." "I agree," I replied, "housing has been going downhill for about the last twelve years or so, but rental auctions are a relatively new thing." He was a bit puzzled. For the past six or so years he's had to compete in an open auction to secure rental accommodation and as such that's all he now knows. He's been doing it so long that it's now second nature. He fails to see a way out of all of this. "Don't compete," I told him, "just withdraw from the process." "Not that simple," he replied, "you see it's easy for you, you know what to do and say. However when you're faced with sleeping in the parklands or getting a place then you do what you need to do." It was futile. He pointed out that I've never been in such situations, I replied with what happened to me last year when a dodgy real estate agent attempted to play me off - it's across the board. In a way he was right - the places I'd be looking at are well outside of his price range, but that doesn't mean rental auctions don't exist for all price ranges.

The other fallout was when I spoke to a chum who does some work for the fuzz here. They confirmed that we do have a few dodgy landlords who offer to rent places for 'services rendered'. As the people they prey on are vulnerable and usually homeless, their actions go unreported. "We know all about them," I was told, "but as no-one is prepared to go to court, well, there's bugger all that can be done about it." Bastards!

The end result is that both actions aren't illegal, yet. Immoral, yes, illegal, no. Insane isn't it?

In 2003 and 2004 there was a huge hue and cry about the practice of 'dummy bidding' in relation to on-site house auctions. Agents would artificially bump the price of a property up by 'accepting' bids from trees, passing cars, urinating canines, nits, you name it. Various media outlets lept all over the practice causing it to be addressed at the Pacific Rim Real Estate Conference in 2004 - you can see the paper here. I'll quote that paper now;
"One real estate practice that has achieved a great deal of media attention is that of “dummy bidding” which refers to bidding at an auction by those who have no genuine intention to buy. The real estate industry at large would distinguish this from vendor bidding whereby the vendor bids either on their own behalf or though an auctioneer or agent up to but not including a preset reserve selling price. Such bidding by an auctioneer on behalf of a vendor has been described colloquially as the “pulling of bids”. Most in the industry would agree that dummy bidding at auctions is misleading and that it should be specifically prohibited. However views regarding vendor bids are more equivocal. Many in the industry would argue that vendor bidding creates momentum in auctions and that the vendor bid equates to the vendor’s counter offer in a private treaty negotiation. As such vendors should not be placed in a worse position in auction sales than they enjoy in private treaty sales negotiations."

Of course it creates momentum in auctions. it makes people think that an actual auction is taking place when it really isn't. It means an auction that might otherwise have ended is still current. I expect that the practice still takes place, although legislation was introduced to make auctions transparent and to remove 'dummy bids', it'd just be a bit more discreet.

For the record I was involved in an auction as a 'dummy bidder' once. in 2002 I wandered over to see an auction with an ex of mine because we were both bored and the book shop I wanted to go to wasn't open yet. The auctioneer began his spiel and started the auction. Before I knew it he was saying things like, "Do I hear $10,000 more?", then pointing at me and saying, "Thank you sir!" He'd then increase the price. All the time I thought, "Shit, what happens if no-one else bids?" I wasn't bidding, I stopped shuffling and still I kept 'bidding'. I moved to another position. The auctioneer looked puzzled, looked around and before I knew it I'd 'bid' another $20,000. Finally I said, "No! I'm not bidding!" only to have the auctioneer say, without missing a beat, "The gentleman is out." "I was never fucking in you idiot!" I yelled, utterly exasperated. People looked at me very oddly. The auction ended very shortly after.

The house sold for an incredible $185,000 over the pre-sale estimate, partly my fault for being there. For me it was fairly frightening really as I fully expected to be the owner of a house I didn't want for price I couldn't afford. Part of me still wonders what would have happened if I'd 'won'. Each time I go past the house I feel for the people inside - they bought a house for more than they should have paid.

'Dummy bidding' on house sales is illegal, however bidding on rental properties isn't - yet. It should be though because it's an insidious practice to say the least. If someone advertises a place for a set price then they should stick to it. To engage in a 'silent' auction, that is an auction that isn't advertised at the start, only serves to cause pain and more rental stress for those people who might 'win'. People go in with a set budget and that's blown out of the water by an auction - before they know it they're committed to paying extra money that they've not budgeted for. That's when the problems really set in. I suspect, and this is from my own experiences and from listening to people, that, more often than not, 'dummy bidding' is now rife with rental auctions.

I spoke to a lady who thought she'd found a property for $190. In the course of our conversation she mentioned that the ad said $190 so she filed an application and was accepted. Two days later the agent phoned her and informed her that someone else had viewed the property, after she'd been accepted mind you, and had offered $210. If she wanted to increase her offer to $220 then it'd be hers. She'd been approved $190 and came to see me to ask advice. I informed her that we'd go no higher than $190 with assistance, if she wanted to pay $220 then she was on her own. I then told her all about rental auctions and how they're run and that she was probably being played. She phoned the agent right there and then and said she'd pass. A day later she got a call, the property was hers, for $190. She then negotiated the price down to $180. Brilliant! This is why I believe that 'dummy bidding' is evident with rental auctions.

We're not talking about vendor bidding here either - the owner/vendor isn't bidding to rent their own property. If the practice has to happen then make it totally transparent. Insist on seeing absolute proof that someone has bid against you. Currently, in relation to house sales, by law in South Australia an agent is 'required to register all bidders and auctioneers will be required to identify all bids with reference to the bidders registration number, which is to be clearly displayed. One bid only is to be permitted on behalf of the vendor, which is to be clearly identified as a vendor bid. The agent/sales representative is to be required to record the agreed reserve and document any changes to the reserve, in writing prior to commencement of the auction. The agent/sales representative is to be required to make and keep a record of all bids made at auction, and identify which bids were vendor bids. Agents are to be required to retain the register of bidders, record of bids and documentation evidencing the reserve for a reasonable period of time to facilitate the later scrutiny of the auction process'.

The above legislation/rules can easily be expanded and adapted to accommodate rental auctions. If they have to happen then make it legal, make it moral, and make it regulated. Here's how: an agent would assign you a number when you register interest in a property. Your details are entered into a database and your bid is either accepted or rejected. If you're outbid then you're told straight away - no opportunity to rebid as you're allowed one bid only, that being your initial offer. All bids are recorded, thus if you think that there's something improper going on you simply ask for an audit. No names and/or personal details will be released to the general public, however those details can be released to a proper regulatory board if need be to ensure that the process was handled legally. Thus you'd soon see if you were engaged in a proper auction or a fake auction. If the auction was fake then action would be taken against the agent and sanctions imposed.

The sooner the real estate industry and/or the government wake up to these practices and expand their original legislation to eliminate rental auctions the better. It'll take a campaign stronger than my blog entries though but someone has to start somewhere. In the meantime if you're faced with a rental auction then don't participate. The odds are good that it's a fraudulent auction and you're the only person involved. As soon as someone phones you and tells you that 'someone else' has offered more, withdraw your application, thank the agent and inform them that you'll go elsewhere. When they backpedal begin your negotiations and get the best possible deal for yourself and then tell everyone, make it public - hell people run to the media with nothing stories showcasing the worst of everyone else so why not begin to expose rental auctions for what they really are - exploitation. The industry needs to be held accountable for rental before something tragic happens - as I said, I can see properties being offered on places like eBay before too long, or someone will offer a family member up for sexual abuse in order to secure a property. Alarmist? Possibly. But trust me, it will happen, and when it does, well don't whinge. Especially if you were made aware of it and kept your silence.

The Real Estate Institute of South Australia did announce new guidelines to control rental auctions but in my eyes they don't go far enough. They've inserted one of those all purpose clauses into the guidelines, "If a potential tenant wishes to make a higher offer then that is entirely their choice. The important distinction is that property managers must not encourage rental auctions." I'll stress that these are guidelines only, it's not enforceable by law or any other legal body. They're short and reek of band aid methods to cover the institute from any real response. Mind you I don't recall seeing any media release about these guidelines. Still, if you're looking for a place and think you're being duded, take a copy of the guidelines with you. It probably won't help much though as they don't go anywhere near approaching offering real protection. Kudos for them for recognising, albeit well after the horse has bolted, that there's serious issues that need addressing.

Having said all of this I'll stress that not all agents and landlords are like this - the bulk are decent and will do everything to assist you in your quest to be housed. As with any industry there's plenty of cowboys out there who like nothing more than to see how far they can stretch the elastic before it breaks.