Lawsuit accuses Auction.com of using ‘shill bidder’
There’s a new real estate show in the works: “Shill Hunters.”
An upcoming courtroom showdown will delve into the ethically murky world of real estate, where transparency can be as difficult to come by online as it is on land.
The case winding its way through California courts accuses Auction.com — dubbed the “eBay of real estate” — of artificially inflating the price of one of its online offerings through the use of a so-called shill bidder.
The suit, which is headed to trial next year, is making news just as the sector is poised to explode. Google invested $50 million in Auction.com in March to mark the arrival of online property auctions and with a promise to “level the playing field for smaller investors.”
Auction.com’s aim of upending the real estate business isn’t winning it any friends. Property agents have complained for years about Auction.com’s little-understood practice of bidding on behalf of a seller — without revealing the identity of the bidder — to motivate buyers to meet the minimum price needed for a sale to go through.
Auction.com doesn’t consider this a shill bid, but it’s such a hot-button issue in California that the state recently passed a law requiring property auctioneers to disclose bids they make on a seller’s behalf starting July 1, 2015.
“To the best of our knowledge, we’re the only state to pass this sort of legislation, even though we believe shill bidding to be prevalent all over the country,” said a spokeswoman for the California Association of Realtors.
The legislation is relevant to Irvine, Calif.-based Auction.com only to the degree it tolerates shills, which, according to Auction.com General Counsel Lee Leslie, it doesn’t.
“Shill bidding is illegal,” he told The Post. “Auction.com has never used or allowed this practice.”
But in the case at hand, Village at Redlands Group (VRG) alleges Auction.com either used a shill or turned a bidder into one while auctioning off cottages in Redlands, about 65 miles east of LA, for $7.375 million.
The suit, filed in California state court, contends VRG’s initial bid of $5.35 million should have been enough to secure the property. But the VRG suit charges that Auction.com was in cahoots with the property’s loan holder, former owner and real estate agent “to unfairly inflate the price that would be paid by a qualified bidder.”
RES, the loan holder, began foreclosure proceedings on Mountain View, the property’s owner at the time, in January 2011. After becoming the cottages’ post-foreclosure owner, RES directed Rialto Capital, a real estate agent, to list the property with Auction.com, according to the suit.
VRG qualified as a bidder for the property in April 2012 after it submitted an initial deposit of $25,000 and proof of $6.67 million in readily available funds.
The auction itself took place over the next few days, with a starting bid of $2.85 million and a reserve price of $6.9 million.
Only after winning the auction, according to the suit, did VRG learn its opposing bidder was none other than Mountain View — the same entity that only a year earlier lost the property to foreclosure.
VRG alleges Mountain View lacked the funds to qualify as a bidder and quotes an e-mail its executive director sent to real estate agent Rialto Capital midway through the auction.
“Auction.com stated that we will not be able to bid if we cannot show the $6.9 [million] as liquid [cash] in a bank account now,” the executive director wrote. “We can’t show the $6.9 [million] in an account right now. Can we make this work, knowing we will fund in 30 days?”
The real estate agent responded to the query from Mountain View by e-mailing Auction.com: “Pls make sure these guys can bid.”
Auction.com called the suit “wholly without merit” and in its motion for summary judgment dismissed it as “a legal shakedown.”