The Rent bidding debate lit up the real estate media recently.
The calls and social media commentary that followed, demonstrates the very real frustration people are feeling when finding somewhere to live during this rental accommodation pinch.
The reference to “greedy landlords” was too much for many owners who blew up at how the rising government charges are making it hard just to keep their property cash flow positive. Tom Elliot on 3AW also added to the debate suggesting it was government charges on landlords that was a large part of the problem as well as high net migration.
The furore started after an agent was accused of soliciting higher offers. AKA – Rent Bidding.
What is Rent Bidding?
Rent bidding is when an agent / owner solicits or encourages offers above the asking rent. Rent bidding can also be when the advertised rent is increased after a suitable application has been received at a lower asking rent.
What isn’t rent bidding?
Rent bidding is not, when a renter offers more rent (unsolicited). It might smell like rent bidding, but it’s not. While that might not pass the pub test, desperate renters are doing whatever they can to secure a property. Like it or not, offering more rent is a pretty common occurrence at the moment and a renter is not breaking the law if they do.
There is also no law against an agent encouraging offers below the advertised price which happened a lot during covid when rents tumbled.
What causes rent bidding?
In red hot rental markets, the price renters are prepared to pay rises faster than the agent or owner realise. Therefore, the asking rent is set below what the market is prepared to pay. Potential tenants then start offering more rent. No laws broken so far. If the agent or owner then start to encourage offers above the asking rent, the line has been crossed and that is rent bidding.
What is the problem with Rent Bidding?
Think about an auction where the only thing being negotiated is price. In determining the successful buyer there is no assessment of
- who the buyer is,
- if they can afford to pay the price or
- what they intend to use the property for.
Auctions are all about the money and can create sharp price rises very quickly in hot markets.
If rent bidding was allowed, rent applications could become just about the money. It could unfairly disadvantage people from a fundamental need for a place to live and call home.
Owners and agents understand the importance of enabling and managing long term safe homes. They evaluate rental applications on a broad range of criteria to ensuring the renter, the property
and the owner are a great fit for each other.
Did banning rent bidding work?
Rent bidding was banned by the Victoria Government in 2021 but did it work?
Well, it prevents “rent auctions” which is a good thing.
It doesn’t prevent a renter offering more than the asking rent and it is difficult to control free markets.
Some have suggested it should be illegal to make an offer above the asking rent. What do you think the unintended consequence of this might be? People offering 12 months’ rent in advance or worse still, asking rents lifted above the market and then soliciting lower offers if no one pays the asking. Mayhem.
Overall, the current rules work reasonably well in tempering the market and preventing rent auctions.
Why is rent bidding happening now?
It’s happening now because the rental market is in desperate undersupply. This is due to several factors including the increased costs imposed by the various levels of government on investment
owners. In the face of these cost hikes, many owners are losing money on their property and must either pass the costs on or sell the property. This is reducing the rental pool.
Other factors like high net migration into Australia is putting pressure on the rental market.
How to avoid rent bidding.
The best way to avoid rent bidding is for the agent to set the asking rent correctly in the first place.
When you see a queue of people at a rental inspection it might be because it is under-priced, or it is a highly sought after property and has just hit the market.
For renters trying to find a property it can be really hard. Only offer what you can afford. Make sure you accommodation standards meet your budget. Get to know the local leasing agents and see if they have any upcoming or off market listings you could apply for.
Otherwise look at lots of properties to find the right one for you and at the right price.