This along with the other articles I posted show how pervasive and in this case is part of a system. Here is a shill operation in Real Estate. "A little known practice"... please......
It's a scummy system, that's what it is. Just like WallStreet.
http://www.ocregister.com/2014/07/29/realtors-seek-to-ban-shill-bids/
A little-known practice in which auction companies privately bid on the properties theyโre selling is pitting two real estate groups against each other.
On the one side are real estate auction firms like Irvine-based Auction.com that defend the practice. On the other is the California Association of Realtors, which calls the practice โshill bidding.โ
Real estate agents have complained for years about Auction.com, first about its practice of making seller bids and, more recently, about a program that second-guesses deals agents reach.
Now the two groups are battling over a Realtor-backed bill requiring real estate auction houses to disclose each bid they make on a sellerโs behalf as the bid is made.
The measure, Assembly Bill 2039, passed the lower house of the Legislature and is pending before a state Senate committee.
Currently, itโs common for auction firms to make bids on behalf of a seller โ without revealing the identity of the bidder โ to get the price of a home or commercial property up to the โreserve,โ or the minimum price needed for a sale to go through. If the reserve isnโt met, the auction house doesnโt get paid.
The real estate trade group wants the bids revealed, saying the current process creates an illusion that a bidding frenzy is taking place.
โFake bids are submitted to artificially drive up the price,โ said Alex Creel, the Realtor groupโs chief lobbyist.
โIt gets the competitive spirit going,โ he added. โOnce the bids start coming in, you think, โWow. This must be really worth itโ โฆ and you donโt know youโre bidding against a fake bid.โ
But Auction.com Executive Vice President Rick Sharga said Realtors are blatantly misrepresenting whatโs going on, implying that auctioneers are falsely ratcheting up the price.
โThatโs not what we do; itโs not what any legitimate company does,โ he said.
Auction.com long has disclosed on its website that it employs the tactic and openly defended its use in the past.
โIt helps them get close to the reserve, so the seller can consider the deal,โ Sharga said. โIf you eliminate bidding on behalf of a seller, you cause a lot of these transactions to not take place. Itโs not good for the buyer or the seller.โ
Auction.com, which claims to be the nationโs biggest online real estate seller, is seeking to overhaul the traditional approach to home and commercial property sales by moving transactions online.
The firm sparked agentsโ ire in the past couple of years with the creation of its โmarket validation programโ to ensure that lenders get top dollar during short sales, or sales for less than is owed on a mortgage.
Under the program, lenders require that agents submit their short sale listing to an online auction after locating a buyer but before closing the deal.
Sharga said 57 percent of those auctions generated higher prices in California. In many cases, agents lost both the sale and their commission.
โItโs hard to argue (against) the benefit of selling a home at a higher price,โ Sharga said.
During an interview last year, Auction.com co-founders Rob Friedman and Jeff Frieden maintained that submitting seller bids is common in the auction business.
โThatโs not something we invented,โ Friedman said, noting that Sothebyโs and other art auction houses do the same thing.
But Creel noted that eBay forbids โshill bidding,โ which it defines as anytime โa seller โ or someone associated with a seller โ bids on that sellerโs own item.โ
โEBay is the biggest online auction there is, and they donโt allow shill bidding,โ Creel said.
Sharga said Auction.com has made its disclosures more explicit on its website since AB2039 was introduced. But requiring individual disclosure each time a seller bid is made โwould disrupt the process,โโ he said.
The tactic is not without risks. When the Register toured Auction.comโs bidding floor last year, a technician inadvertently placed a bid just as an outside buyer was submitting an offer at the reserve price. Auction.com ended up with the high bid.
Auction.com then was in the position of having to ask the buyer if he still wanted to pursue the deal at the price he last bid, with no guarantee of a sale.
Creel said that his trade group first looked into the issue after learning that sellers and lenders put sole control of the transaction with the auction house while requiring brokers to sign an indemnity agreement holding the seller harmless for any problem with the sale.
AB2039 forbids auction firms from requiring sellers and listing agents to sign indemnification agreements.
โWe said, โHey, look. You canโt take the transaction away and not take away the liability,โโ Creel said.
Sharga said Auction.com would be willing to look at mutual indemnification language that protects both parties, but Auction.com would object to a law that eliminates seller bidding or mandated disclosure of seller bidding that disrupts the bidding process.
โI think we can all settle on some aspect of disclosure,โ Sharga said. โThe ongoing debate is how granular the disclosure needs to be.โ
