Auctions frequently include a buyer’s premium, but the question many bidders have is: what is a buyer’s premium in an auction? A buyer’s premium is a percentage of the final bid price, added to that bid to calculate the final sales price. For example, a car selling at auction for $15,000 with a 10% buyer’s premium would require the buyer to pay $15,000 + (.10 × 15,000) = $16,500. This article explains how to calculate a buyer’s premium in an auction, whichever number you’re starting from.
Buyer’s Premium Calculator
How do you calculate a buyer’s premium based on either the high bid price or the total sales price including the buyer’s premium?
How to Calculate Buyer’s Premium from High Bid?
If the high bid price is known, the buyer’s premium is calculated by taking the BP as a percentage times the high bid price.
For example, a diamond ring sells for $4,900 and a 10% BP is charged. The BP alone would be 4,900 × .10 = $490.
How to Calculate Buyer’s Premium from Total Payable Amount?
If the total sales price is known, including the BP, we can calculate what the BP was by taking the total sales price times [buyer’s premium / 1 + buyer’s premium]. For example, our aforementioned diamond ring sells for $5,390 including a 10% BP. If we want to know how much the BP was, we take 5,390 × .10 / 1.10 = $490. Some other examples:
- $27,500 price including 10% BP: 27,500 × .10 / 1.10 = $2,500 buyer’s premium
- $525 price including 5% BP: 525 × .05 / 1.05 = $25 buyer’s premium
- $10,637.50 price including 15% BP: 10,637.50 × .15 / 1.15 = $1,387.50 buyer’s premium
Care must be taken to ensure the buyer’s premium numbers are calculated correctly.
How to Calculate Total Amount Including Buyer’s Premium?
There is the conventional manner in which this calculation is completed, as we noted above. Most everyone takes the final hammer price times the BP and then adds the final hammer price. While this method is acceptable, there is an easier way to calculate buyer’s premium if one has a handy calculator.
Our quicker method involves the principle that adding a percentage to a number is the same as multiplying it by [1 + that percentage]. For example, adding 10% is the same as multiplying by 1.10, where “10%” is expressed as the decimal “.10.”
Therefore, when adding a buyer’s premium, convert it to a decimal and add it to 1. Then multiply the final bid by this number to calculate the total including the buyer’s premium. Some examples:
- $150,000 home selling with a 15% buyer’s premium: 150,000 × 1.15 = $172,500
- $1,050 wristwatch selling with a 10% buyer’s premium: 1,050 × 1.10 = $1,155
- $45,000 horse selling with an 8% buyer’s premium: 45,000 × 1.08 = $48,600
How to Calculate Hammer Bid from Total Payable Amount?
Let’s move on to calculating what the high bid was, if we know the number which includes the buyer’s premium.
For example, someone says that a John Deere tractor recently sold at auction for $60,500 including a 10% buyer’s premium. How would we figure what the hammer price was?
By taking the $60,500 total price for the John Deere tractor and dividing by 1.10, we get $55,000, which must have been the high bid, prior to adding the buyer’s premium.
Therefore, when backing out a buyer’s premium, convert it to a decimal, add it to 1, and divide the total price by this number for the high bid excluding the buyer’s premium. Some examples:
- $253,000 price including 15% buyer’s premium: 253,000 / 1.15 = $220,000 bid price
- $55,000 price including 10% buyer’s premium: 55,000 / 1.10 = $50,000 bid price
- $2,100 price including 5% buyer’s premium: 2,100 / 1.05 = $2,000 bid price
Conclusion
That covers the basics of how to calculate a buyer’s premium. If you participate in an auction, you should expect to pay the buyer’s premium in addition to the hammer price. The buyer’s premium is separate from the seller’s commission, which is a fee the seller pays to the auctioneer, not the buyer, according to the National Auctioneers Association. It remains one of the auctioneer’s primary sources of income, so it’s always worth confirming the exact percentage in an auction’s terms and conditions before you bid. It’s also a good idea to set a firm maximum bid before you walk into the auction, and to stick to it. If you still have questions about calculating a buyer’s premium, please call our auction team at (512) 261-3838. Good luck!
FAQs
What Is a Buyer’s Premium?
A buyer’s premium is a fee, usually a percentage of the winning bid (the hammer price), that’s added on top of that bid to arrive at the total amount the buyer pays. It’s charged in addition to the hammer price, not instead of it, and the percentage is set by the auctioneer rather than negotiated bid by bid.
What Is 10 Buyer’s Premium at an Auction?
When the buyer’s premium is 10%, it is called 10 buyer’s premium. For example, if the hammer or high bid price is $5,000, the 10 buyer’s premium is 5,000 × 0.10 = $500.
What Is 15 Buyer’s Premium at an Auction?
When the buyer’s premium is 15%, it is called 15 buyer’s premium. For example, if the hammer or high bid price is $5,000, the 15 buyer’s premium is 5,000 × 0.15 = $750.
