New limits on vendor bids at auction

Last updated 09:34 09/07/2014

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A raft of changes to the Fair Trading and Consumer Guarantees Acts covers goods bought at auction, including commercial and residential properties.

One of the biggest changes relates to vendor bids, which are still permitted under the new law.

But now, unless properly made, they could be a false and misleading representation under the Fair Trading Act.

Usually an auctioneer makes a vendor bid on the vendor's behalf to start the bidding, keep the bids moving or to persuade buyers to raise their bids so they are closer to the vendor's the reserve price.

"But sometimes these bids have been used to artificially inflate the price that is reported if the property is passed in at auction below the reserve price," the Real Estate Agents Authority says.

"This can inflate the price expectations for a future auction, despite there being no genuine bids at that price," according to the authority.

The new law protects bidders who do not understand the vendor bid process or its purpose, and who could be deceived into thinking that a vendor bid was a genuine bid.

Now a vendor bid can be made only if:

- the property at auction has a reserve price;

- the bid is clearly identified by the auctioneer as a vendor bid; and,

- the reserve price has not been reached.

And if the property is unsold at the end of an auction, any subsequent reference to a vendor bid (if it was the highest bid in the auction) may not be used.

The only amount to be quoted can be bids from genuine prospective purchasers.

Consumer New Zealand calls the law changes "long overdue", especially the amendment of the Consumer Guarantees Act to cover goods bought at auction including internet auctions.

In other changes, the Fair Trading Act now bans unsubstantiated product claims.

This means businesses can't make claims about something they are selling if they don't have evidence or reasonable grounds for making them.

Businesses will also face substantially tougher penalties for serious breaches of the Fair Trading Act.

Maximum penalties for misleading and deceptive conduct, false representations and unfair practices have increased from $60,000 to $200,000 for individuals and from $200,000 to $600,000 for businesses.

Individuals who repeatedly break the law will face banning orders for up to 10 years.

Businesses will also face penalties for failing to comply with the rules relating to door-to- door sales, extended warranties and lay-by sales.

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