If you follow auctions, you will notice that almost all of them utilize a buyers premium. This will cause many of you to wonder, “What does buyers premium mean at an auction?
What is Buyers Premium in Auction?
A buyer’s premium is a fee, usually in the form of a percentage of the price, that is added to a sale price, or what is sometimes called the “hammer price” in an auction, to arrive at the total price for an item.
How does Buyer Premium Work at an Auction?
Example: A piece of equipment in an auction sells for $100. There is a ten percent (10%) buyers premium charged at the auction. The total price (before any applicable sales tax) would be $100 times .10, giving a buyers premium of $10 and a total price of $110.00
Purpose of a Buyer’s Premium at an Auction
The buyers premium in an auction can be utilized for many reasons. The actual percentage of the buyers premium is agreed upon by the auctioneer and the seller and the fee can be used to offset expenses of the auctioneer, offset expenses incurred by the seller, to reduce the commission paid by the seller, or a combination of all of the above. There are many expenses involved in conducting an auction. Marketing, preparation of the assets, such as cleaning or repairing, labor to set-up the auction items and organize them, labor to tag and catalog the items, security for the site or on auction day, labor to oversee inspection or preview, labor to oversee checkout and removal of the items after the auction, auction software platform fees, insurance for the items or the insurance for the auction staff. Auction houses have overhead including insurance, taxes and rent as well. If the auction site is out of town, for the auction company, there are also travel expenses involved. Sometimes the buyers premium in an auction is used to make the auction possible, because without it, the expenses of the auction may be too great.
Factors Affecting Buyers Premium
The factors affecting the buyers premium in an auction are numerous. Tradition plays a role in buyers premiums for many different types of auctions or types of merchandise sold in a particular auction. Some of the highest percentages of buyers’ premiums are found in art, antique and collectible auctions (usually over twenty percent). It is reasonable that a bidder will bid more for an item that is rare and difficult to find or possibly one of a kind. Bidding on antiques and collectibles in an auction can involve a bidder’s emotion or “getting caught up in the moment” and can cause a bidder to ignore a buyers premium when they rationalize how much they would pay for an item.
In auctions for assets such as real estate, the percentage of a buyers premium is usually much lower (usually under 10 percent) and mirrors the traditional commissions paid for real estate. Other factors such as regions of the country may play a factor in the buyers premium amount.
To wrap up
Since a buyers premium is almost always present at auctions, it is important for bidders to pay close attention to this fact and read the terms & conditions before they bid. Bidders should never assume the amount of the buyers premium. The buyers premium should always be found in the auction terms & conditions and will usually be announced by the auctioneer in their opening statement at a live auction.
FAQs: What is Buyers Premium in Auction?
What is a buyers premium in real estate?
In a real estate auction, a buyer’s premium is a fee, usually in the form of a percentage of the price, that is added to a sale price, or what is sometimes called the “hammer price” in an auction, to arrive at the total price for the real estate being sold.
What is the difference between a Buyers Premium and a Seller’s commission?
A buyer’s premium is paid by the buyer. A seller’s commission is a fee paid by the seller to the auctioneer.
Who pays auction fees, the buyer or the seller?
Every auction can be different. If a buyers premium is being charged in the auction, it can be considered that the buyer is paying some fees. The final decision on who pays the fees is determined by an agreement between the seller and the auctioneer.
Who gets the buyers premium at the auction?
Every auction can be different. Who receives the buyers premium is determined by an agreement between the seller and the auctioneer.
Who sets the buyers premium?
The auctioneer usually suggests the buyers premium amount in their negotiations with the seller.
How do I pay the buyers premium?
The buyer’s premium will be a line item charge on your invoice from the auctioneer.
Is the buyers premium taxable?
is considered part of the final price and is taxable. That being said, it is dependent on the particular state’s sales tax law.
Does the amount of buyers premium vary between auction companies?
Yes, it can. The buyer’s premium amount can vary between auction companies depending upon what they are selling and the expenses incurred for that particular auction.
Can the buyers premium be negotiated or waived in an auction?
Usually, no. Most auction companies will not negotiate or waive a buyers premium as it would not be fair to other bidders.
Does the type of auction affect the amount of buyers premium charged?
Yes, it can. Bidders should never assume the amount of a buyers premium.
Is the buyers premium included in the advertised starting bid price?
Buyers premiums are traditionally not included in a sale price or hammer price in an auction.
Is it mandatory to pay the buyers premium in an auction?
Yes, if a buyers premium is being charged at the auction in question, it will be mandatory for the buyer to pay that amount on their invoice.
Can the buyers premium be a determining factor in bidding strategy?
Certainly a wise bidder should take into consideration the amount of the buyers premium if they have a budget on a particular item.
