Many buyers still ask – what is a vendor bid?

Have you ever stood at an auction and heard the auctioneer announce a vendor bid and wondered what it is? I hear this question come up all the time and for most buyers it can be very confusing.

The vendor bid was introduced after the dummy bidding laws were tightened back in the early 2000’s. In NSW, a vendor is entitled to one bid and by law the auctioneer has to announce they are using a vendor bid.

Vendor bids are often used to get the bidding started or if the current bid is not quite high enough. Many a time I have seen a vendor bid used and it completely alienates the buyers and nobody does anything.  Other times it is used at just the right level and it pushes interested buyers closer to the vendor’s expectations.

I was recently at an auction and there were a number of registered parties. The house had been quoted in the high $1million’s. The auctioneer asked for bids but no one put their hand up. He asked again…silence! At that point the auctioneer placed the vendor bid at $2.1million and again nobody did anything.

When the auctioneer was doing his ending spiel he started calling the house going once, going twice and three times even though it was a vendor bid. Nobody did anything and the property was passed in at $2.1million.

Just because a vendor has put the bid in does not mean it is worth that. The reserve on paper will usually be set above the vendor bid. My experience is that with some owners they will take less than the reserve if they can sell on the day.

If you did not go along to the auction and see the result in the paper make sure you ask the agent if it passed in on a vendor bid.  It may make a big difference to how much you pay by finding out this crucial information.