I believe that certain real estate practices being conducted on the Gold Coast may be in breach of the Property Agents and Motor Dealers Act (PAMD) and the Trade Practices Act.These practices relate to promotion and conducting Auctions.The relevant legislation I will be referring to are;PAMD Acto Section 154 of the PAMD act specifies the Code of Conduct applicable to a real estate agency or agent.o Section 231 of the PAMD act specifies the code of conduct applicable to Auctioneers.o Section 593 of the PAMD act relates to false or misleading representations or statements.o PAMD – Real Estate Agency Practice Code of Conduct – Schedule 7 – Honesty fairness and professionalismo PAMD – Real Estate Agency Practice Code of Conduct – Schedule 9 – Agent to act in client’s best interesto PAMD – Real Estate Agency Practice Code of Conduct – Schedule 14 – Fraudulent or misleading conducto PAMD – Real Estate Agency Practice Code of Conduct – Schedule 15 – High pressure tactics, harassment or unconscionable conducto PAMD – Real Estate Agency Practice Code of Conduct – Schedule 18 – Soliciting through false or misleading advertisements or communicationso PAMD – Real Estate Agency Practice Code of Conduct – Schedule 21 – Advice about market price or rento PAMD – Real Estate Agency Practice Code of Conduct – Schedule 29 – Duty to obtain maximum sale priceo PAMD – Auctioneering Practice Code of Conduct – Schedule 7 – Honesty fairness and professionalismo PAMD – Auctioneering Practice Code of Conduct – Schedule 9 – Auctioneer to act in client’s best interesto PAMD – Auctioneering Practice Code of Conduct – Schedule 14 – Fraudulent or misleading conducto PAMD – Auctioneering Practice Code of Conduct – Schedule 15 – High pressure tactics, harassment or unconscionable conducto PAMD – Auctioneering Practice Code of Conduct – Schedule 18 – Soliciting through false or misleading advertisements or communicationso PAMD – Auctioneering Practice Code of Conduct – Schedule 22 – Advice about market priceo PAMD – Auctioneering Practice Code of Conduct – Schedule 31 – Duty to obtain maximum sale priceTrade Practices Acto Part V – Consumer Protection of the Trade Practices Act o Section 52 Misleading or Deceptive Conducto Section 53 False or Misleading representationsAuction – DefinitionAn auction is a form of sale where potential purchasers make competing offers or “bids”, with the person offering the highest bid being declared as the purchaser.Market Information – Gold CoastAustralian property monitors – Home Price Guide – (Owned by Fairfax which also owns property website Domain) publish auction clearance rates for every major city within Australia. The statistics that relate to adjusted auction clearance rates include properties sold prior to Auction by private treaty negotiation ( Including private treaty sales prior to an auction increases the actual auction success statistic and is misleading the market further about Auction success). Representatives of Australian property monitors attend auctions and contact marketing real estate agents to compile these statistics. They rely in part on real estate agents providing factual auction result information.The published statistics for the Gold Coast are:Jan 07 32.6% 49/150 Dec 06 25.0% 14/56Nov 06 36.0% 45/125Oct 06 33.1% 53/160Sep 06 33.3% 38/114Aug 06 37.5% 51/136Jul 06 35.8% 47/131Jun 06 32.0% 41/128May 06 34.7% 42/121Apr 06 36.3% 61/168Mar 06 28.7% 42/146Feb 06 28.1% 45/160For a full year on the Gold Coast as quoted by Australian Property Monitors – Home Price Guide there were 1595 auctions and of those auctions 528 sold at auction or prior to auction. This gives an adjusted clearance rate for the full year of 33.1% (528/1595). The real impact of these statistics is to quote the auction failure rate at 66.9%. Just over 2 out of 3 auctions fail on the Gold Coast. (This clearance rate would also include mortgagee in possession auctions which typically sell below market price due to a lowered reserve price expectation)The legislationThe legislation specifically points to the responsibilities of agents and auctioneers. These responsibilities make it a breach of the act to make false or misleading communications or statements and for the agent or auctioneer to not work in the best interests of the property owner. If an agency or agent promote that auctions are the best way to sell a property they would be in breach of the act based on the auction clearance rates on the Gold Coast unless they can clearly demonstrate why that particular property would be an exception. If an agent or auctioneer are aware of these clearance rates and cannot clearly demonstrate how a particular property would be an exception, then they are not working in the best interests of the property owner. Clearly 2 out of 3 auctions would require scrutiny.Advice about Market PriceIf the agent or auctioneer provide advice about market price, either orally or written they must be able to substantiate it. The suggestion that an auction would be the best way to determine the market price may be misleading particularly if the highest bid at auction, whether the property sells or is passed in, is significantly lower than the advice provided. Having a final vendor bid, that meets advice to market price will not substantiate that the process of an auction was in the property owners best interest or was the best way to achieve a maximum selling price.Price ExpectationsUnder the act, an agent has a responsibility to advise a property owner if they believe their price expectations are too high or too low. In the case of too high expectations, agencies do not provide that honest advice, but rather suggest an auction as a process to condition that property owner to accept a lower price then their expectation. This is a dishonest & unconscionable approach that costs a property owner thousands of dollars in advertising monies to simply come to an awareness of a fair market price.Duty to Obtain Maximum Selling PriceThe agent or auctioneer has a duty to obtain the maximum selling price. I don’t believe this is achievable on the Gold Coast for an auction when 2 out of 3 auctions fail. Additionally you have reservations from buyers who are well aware they do not have the same consumer protection or buying conditions at an auction. This reservation from buyers, to participate, particularly at a fair market price, results in a lack of competition at the auction from potential buyers. This situation compounds the inability for an agent or auctioneer to obtain maximum selling price.Disadvantaged Consumer ProtectionAuctions do not provide the same level of consumer protection. No cooling off period exists and there is no provision for conducting a satisfactory valuation or building inspection after purchasing at an auction, which is provided within the legislation for private treaty property sales. Buyers are well aware of this and avoid buying at auctions unless they believe the property is cheap – or the property is in a particularly high demand position.High Pressure Tactics and CoercionI have personally witnessed at many a Gold Coast auction, agents trying to influence a property owner to place their property “on the market” and to accept far lower bids for their property then the actual reserve price provided. This is pressure placed on a property owner to accept less, particularly because the property owner is only too aware they also spent considerable money on an advertising campaign that will potentially be wasted. The agent may in fact be recommending selling at a fair market price but if the price were significantly less than the original market price advice any property owner would feel reluctant to sell.Evaluation of ResultsI believe the office of fair trading has a duty of care to evaluate actual sale prices achieved at auction and compare them to the market price the property owner was provided by their real estate agent. Particularly if they were provided this price orally without any substantiating support documentation as is stipulated as a requirement on a 22a Form or with an attached CMA.Auction Practice in Other MarketsAuctions appear far more successful in other markets in Australia. Melbourne averages 60% or above. Of the 7 major areas reported by Australian Property Monitors, the Gold Coast consistently reports the lowest clearance rates. Brisbane performs poorly as well with an adjusted clearance rate of 43.3% (621/1432) for the 6 months preceding and including January 2007.Saturday 31st March 2007 – Gold Coast BulletinOn this date, the following numbers of auctions were advertised in the Gold Coast Bulletin.Agency No of Auctions No of Advertising PagesRay White 89 35Professionals 24 6LJ Hooker 26 4.25Harcourts 13 3Coldwell Banker 5 2First National 5 0.5PRD Nationwide 2 0.5Raine & Horne 2 0.25Elders 2 0.5Wentworth 5 1Independants 8 3.25TOTALS 181 56.25Average Page Cost $4,500 – Estimated Advertising Spend $253,125 – Average spend per auction/week $1,398.48 – Average weeks for auction ads 4 – Estimated Auction cost/property $5,593.92Advertising costs vary depending on the purchasing power of the agency group advertising, but I have used a estimated $4500 per page. (Casual rates are in excess of $6000 per page) this equates to $253,000 being spent on advertisements each week on the Gold Coast for auctions. (Weekend 31st March is a average week with number of advertisements represented in the Gold Coast Bulletin.) Based on a success rate of only 33.1% for auctions, it means that over $169,000 is spent by property owners each week on the Gold Coast to advertise an auction that will fail. $169,000 every week! Based on 48 weeks for the year – that is over $8.1 Million dollars in property advertising for FAILED auctions. How can anyone say that this process is in the best interests of property owners?Local Information from Property OwnersIf you need information from property owners who can support the process of failed auctions on the Gold Coast please advise and I will supply specific information of people for you to contact, or I can simply create a process for them to lodge their complaint direct. This process will identify specific agents and agencies, and to be fair I would rather address the issue from a legislative process then create much attention to specific companies and individuals. This issue though needs serious attention, and I will go agent by agent if that is what it takes to provide a fairer system for property owners.Section 594 of the PAMD Act – Public Warning StatementsUnder the act the Minister or chief executive may make or issue a public statement identifying and giving warnings or information. It is in the public interest on the Gold Coast to be made aware of the failings of auctions on the Gold Coast. Too many people are being convinced to auction their property at significant cost, significant disillusionment and with a 67% statistical chance of failure.Auctions are supposed to have no price indicationThe web portals realestate.com.au and domain.com.au all require a price to be entered when advertising a property on their site. An agent can select not to display that price, but the website requires a price so that it can sort that property in search results. Agents typically place a far lower price in this section so the property appears in buyer searches at significantly lower values to try and improve enquiry. This is a form of bait advertising by stealth. The picture below is the property addition section of Domain. Realestate.com.au is similar. The red asterix indicates compulsory fields.The ACCC has taken undertakings from Ray White in the past regarding bait advertising yet this process is continuing every day because these websites make it mandatory for Price to be entered when advertising a auction.REIQ – Position of InfluenceObviously the Real Estate Institute of Queensland is in a position of influence when it comes to assessing legislative changes for the PAMD act. It should be noted that this industry group represent the wishes of its members – real estate agents and agencies. (I am also a member of the REIQ). The current chairman of the REIQ is Peter McGrath. Peter is also a senior manager for a Gold Coast based agency called HILLSEA which has 7 offices all on the Gold Coast. The position of this company is to not do auctions because they know they are not in the best interests of property owners. You have the chairman for the REIQ taking an ethical position when it comes to conducting real estate, yet it is not reflected in the REIQ position. I find this very illuminating.My Recommendation for Advice to Market PriceEvery residential property that is for sale must have a valuation provided by a independent licensed valuer. By providing this property valuation through an independent source both the property owner and the purchaser will have a secure knowledge of the market price (price range). This could eliminate much of the angst associated with real estate agent practices and provide a better level of consumer protection for all parties. Agents no longer have to dance between a buyer and seller with regards to property value as there will be a legislated requirement for full disclosure. This valuation could be equally paid for by seller and successful buyer, and also eliminate mortgage providers need for additional valuations. Agents use the market appraisal system as a way of enticing people to sell through them and creates a system that rewards dishonest behaviour.There is a serious requirement for this practice to be stopped specifically on the Gold Coast, or for far better provisions within the legislation to ensure property owners are better informed about decisions they make with real estate agents. State and Federal Governments have a responsibility to provide consumer protection, which is why the Trade Practices act and the PAMD act exist.