Shill bidding at real estate auctions occur when an individual, or company, places a bid on a property without the intention of actually buying it. Instead a bid is placed for the purpose of influencing other people to bid, and thus, increasing further bids placed on that property. This method of bidding on one’s own auction to artificially drive up the price of a property has been used many times by real estate companies, such as Auctions.com, but it has just recently gotten the California Association of Realtors to stand up against it.
When the California Association of Realtors first began digging into this shill bidding issue they found that there is no law against it in California. In the article REAL ESTATE: Group wants to ban ‘shill’ bidding on auctions, Alex Creel, a chief lobbyist for the California Association of Realtors, explains, “while companies like eBay publicly proclaim shilling is not allowed on their site, auction companies can and do put up a reserve the seller doesn’t always publish for the benefit of bidders. This secret reserve motivates some auction houses to put in real bids from ghost-bidders to hit that price.” However, Rick Sharga, Executive Vice President for Auction.com, believes Realtors are deliberately misrepresenting what’s going on and openly defends the use of shill bidding by pointing out that their website states that it uses the tactic.
Ultimately, this shill bidding problem has caused the formation of a Realtor-backed bill, Assembly Bill 2039, which is currently pending before the California Senate committee after having passed the lower house of the Legislature. The Assembly Bill states it would, “with respect to an auction that includes the sale of real property, prohibit a person from causing or allowing any person to bid at a sale for the sole purpose of increasing the bid on any real property being sold by the auctioneer. The bill, however, would allow an auctioneer or another person to place a bid on the seller’s behalf during an auction of real property if prior notice has been given that liberty for that bidding is reserved and the person placing that bid contemporaneously discloses to all auction participants that the particular bid has been placed on behalf of the seller. By expanding the scope of an existing crime, this bill would impose a state-mandated local program.”