The meaning of the term real estate dummy in the real estate market is used to refer to a person that buys a property on someone else’s behalf, most commonly in order to hide the true buyer or the purpose of the transaction. In some instances, however, a real estate dummy can also be a dummy bidder that attends auctions with the sole purpose of increasing the sale price and who is contracted by the seller.
In both cases, the buyer is anonymous, but they are treated differently. It is important to know which is which in case you face one of these situations and need to know how to handle them separately. One is legal but creates an ethical dilemma for lawyers if they need to defend undisclosed buyers that bought a property through a real estate dummy, but it is some of the things real estate agents do in order to close a deal. The other is illegal and heavily frowned upon as it can affect the selling price of the property unjustly as no real intention of purchase exists from the dummy bidder.
The definition of a dummy buyer or dummy purchaser in real estate is a person that purchases a house or lot in someone else's name.
It can happen because the real buyer wants to conceal their identity and make the purchase without drawing attention. This is particular to famous or well-known individuals. For instance, a celebrity is interested in purchasing a home. Given their financial status, if the seller finds out about this, they might be tempted to increase the price of the home. In order to avoid such situations, the celebrity buyer can contract a dummy purchaser so that they can make the purchase on their behalf.
The other instance in which this can happen is when the reason for the purchase is hidden and by extension, the name of the real buyer can be undisclosed. This can happen most commonly when a real estate developer, for example, wants to buy three remaining homes/lots in an area with several other homes/lots. The goal is a shopping mall. If the seller finds out about this prospective new development and the desire to build a mall, the price of the home will be increased. Because of that, the buyer contracts a dummy purchaser that makes the purchase for them. Like this, developers from the private sector can also avoid the eminent domain invocation in order to purchase the land needed for new infrastructure.
Another reason for using a dummy purchaser can be a situation in which the buyer does not qualify as a bidder in an auction for various reasons. The buyer can contract a dummy purchaser so that he could have access to the lot or property in question. This practice is used in Australia.
At auctions for various possessions, properties and other material things, the whole goal is to bid for the thing you want and manage to outbid others. However, if another person who is bidding against you has no interest in purchasing the item for themselves or for someone else, it will only increase your bid unrealistically. Dummy bidding is illegal because it creates an unjust market.
The definition of dummy bidding is to contract a dummy bidder as a seller, infiltrate them at the auction, and have them raise the bid. This is a false bid as the dummy bidder will not purchase the item, it will only make the real bidder more competitive, making them to increase the bid further. The sole goal of a dummy bidder is to increase the price of the item at the auction so that the seller receives a larger check.