The recent media storm around South African auction practices may spook some people when bidding on property. Potential bidders may have the urge to scour the audience for ghosts to try to ascertain whether all the people in the room are genuine bidders at a property auction. In actual fact, the illegal practice of ghost bidding is not that common.
The term “ghost bidder” applies to individuals who attend an auction with the intention of driving the selling price upwards. Although these people have no intention of buying the property, they bid against other legitimate bidders with the sole purpose of achieving a higher price. Auction fever, if you will.
The practice of ghost bidding is prohibited in South Africa. The rules of the SA Institute of Auctioneers state that members are obliged to take all reasonable and necessary steps to prevent the manipulation of an auction, inter alia by bidders who are "planted" with a view to manipulating the price of a particular item obtained at an auction and in circumstances where the planted bidder is not a genuine prospective purchaser.
There are also rules that apply to vendor bidders (an auctioneer who registers as a bidder for and on behalf of the seller). The Consumer Protection Act (CPA) also comments on the practice and states that notice must be given in advance if a sale by auction is subject to a reserve or upset price, or if the owner or auctioneer or anyone on behalf of the owner or auctioneer is bidding.
Mark Kleynhans, the spokesperson for the High Street Auction Co, says the placing of ghost bidders at an auction is highly irregular and that his company does not condone the practice. He says that if the company was ever alerted to a staff member practising or participating in such unethical behaviour, they would immediately enforce their policies and deal with the situation to the fullest extent in line with the company’s policies.
“Our bidders are required to register and in doing so they need to comply with the regulations set out in terms of the Financial Intelligence Centre Act (FICA), sign the terms and conditions relating to the rules governing the auction and pay the required deposit. Only once this is done is the bidder registered and issued with a numbered paddle. Only members of the audience in possession of a numbered paddle are considered for any and all bids.”
It is fairly easy to ascertain who the genuine bidders are at an auction. Their names must appear on the bidding roll and anyone who has any doubts can ask the auctioneer to stop the proceedings and insist that the other bidders identify themselves.
There are undoubtedly sellers out there who do attempt to use underhand tactics and as such will attempt to inflate the selling price by illegally bidding on property. However, High Street Auction Street Co’s policy is very clear and they do not allow sellers to bid on their own property.
When asked if the recent media attention that has been focussed on the auction industry could change the way auction houses conduct their business in future, Kleynhans noted that the events of the past couple of weeks would serve to encourage the auction business to become even more transparent.
“The auction industry is regulated and compliant,” he said. “Businesses that conduct themselves ethically and use compliance as a driving principal in their business operations will grow and be successful. Those that do not operate in a compliant environment will struggle as the consumer is going to ensure that they not only know their rights, but are more savvy and fully understand the processes when buying or selling property on auction.”
