Last year, I received a query from a landowner which indicated that a person had been bidding at the auction for the sole purpose of pushing up the price against genuine bidders.

In the past, this might have been considered by either the vendor, the seller or by a disgruntled third party. This begs the question as to the law and general approach to puffers at auctions.

This was the original query but it is not unique, at least in terms of its sentiment: “A piece of land which bounds some of my own land came up for auction last week. The auctioneer was giving a guide price of between €8,000/ac and €10,000/ac.

However, when I met him to view the property, he told me that the bank was putting on pressure to sell and it would be put on the market at €6,000/ac.

Bidding was fierce with an unknown bidder and I ended up giving €10,000/ac.

However, I subsequently discovered that the vendor had organised for his brother-in-law to bid it up. I am so angry over the whole thing. I do not want to go ahead with the purchase. What are my rights?”

The Property Services (Regulation) Act 2012, which came into force on 6 July 2012, may provide a solution for this type of situation. It applies to all property service providers, including auctioneers in the auction of land.

The legislation provides that where land is offered for sale by auction, the vendor shall not bid at the auction or permit any person to bid on the vendor’s behalf. The only exception to this stipulation is where land is offered for sale in compliance with a court order under family law separation or divorce proceedings.

Where the vendor has arranged for someone to bid on his/her behalf, as might appear to have been the case in a limited number of situations such as the one indicated by this query, the purchaser of the land may refuse to complete the contract of sale in respect of the land without incurring any civil liability in consequence of refusing to complete the purchase.

Obviously, it is essential to have verifiable evidence that the vendor arranged for someone to bid on his/her behalf before refusing to complete the transaction. If it is proven that the vendor arranged for someone to bid on his/her behalf, he/she can be found guilty of an offence and liable to a fine of up to €5,000 or 12 months in prison, or both.

Obligation on auctioneers

The legislation also provides that the auctioneer shall not knowingly accept a bid made by the vendor or someone acting on his behalf.

Consequently, a practice has arisen where the auctioneer dealing with a sale will require any intending bidders to register before the auction. This is to enable the auctioneer to be satisfied about the independence and integrity of the bidder and whether they have proof of funds to complete the purchase.

The legislation also provides that the auctioneer cannot state a price to a prospective purchaser that is less than the advised market value of the land provided by the auctioneer to the vendor.

However, in the case of this example, it appears the auctioneer may have done this, given that the price suggested during the visit to the farm was much less than the guide price.

Regulations are even more stringent for auctioneers/estate agents involved in private treaty sales as there is more documentation required

Such practice can be done to encourage interest by prospective buyers who might not otherwise show an interest in a property. And increasing the number of buyers at an auction can sometimes help to get the price up also.

These regulations are even more stringent for auctioneers/estate agents involved in private treaty sales as there is more documentation required.

The authority

The Property Services Regulatory Authority (the authority) is the body responsible for policing the legislation.

Any person can make a complaint to it in respect of the conduct of an auctioneer and the authority is obliged to investigate that complaint unless, that is, the authority is satisfied that the complaint is not made in good faith or is without substance or foundation.

The authority may, in the course of an investigation, require the auctioneer to provide it with evidence of the reasonableness and means of calculation of any advised market value of land.

Where, on completion of an investigation, the authority is satisfied that the auctioneer has engaged in improper conduct, it has the power to impose a number of sanctions, including issuing a reprimand or warning, revoking or suspending their auctioneering licence and/or may also impose fines.

Further information about making complaints, including the form to be completed, is available at the Property Services Regulatory Authority’s website http://www.psr.ie/en/psra/pages/investigation_of_complaints

It is worth pointing out that the authority will not proceed with an investigation when it is aware that a legal action has already begun. So perhaps it is worth holding off on any legal action, where possible, until this investigation is complete.

Summary

So for those who may need to know, there is definite and strict legislation in place aimed at preventing practices which seek to deliberately push the price of a property above that which might be reasonably entered into by genuine buyers.

This means that persons entering a bidding process for the sole purpose of pushing up the bids against genuine bidders, whether that be land purchase, house purchase or land rental, is definitely in breach of the law and subject to investigation and prosecution.

* Puffer

A puffer is person appointed by a seller to bid on property at an auction, solely for the purpose of stimulating genuine buyers at an auction sale.

Disclaimer

The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors, does not accept responsibility for errors or omissions howsoever arising. E-mail ameehan@farmersjournal.ie