Seller commission & buyer’s premium

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huntingtonWe wrote about seller commissions, sales tax and buyer’s premiums some time ago.

More recently, we again were asked about how seller commissions are calculated in relation to buyer’s premiums.

Here’s that previous article on the overall subject of these three auctioneer income sources:

http://mikebrandlyauctioneer.wordpress.com/2012/01/14/seller-commission-sales-tax-buyers-premium/

Today, we take another look specifically at seller’s (client’s) commission in regard to an auctioneer charging a buyer’s premium.

The question is, “Is the seller’s commission figured on the auction hammer price (bid price) before the buyer’s premium is added on, or the total contract price including the buyer’s premium?”

Additionally, here is more information on the concept of “hammer price:” http://mikebrandlyauctioneer.wordpress.com/2011/03/20/the-hammer-price/

  • Auctioneer A charges his buyers a 15% buyers premium and this charges his sellers 20% commission on the total hammer price.
  • Auctioneer B charges his buyers a 15% buyers premium and this charges his sellers 20% commission on the total contract price.

For a $50,000 hammer price auction, Auctioneer A will have $57,500 total proceeds and earn a buyer’s premium of $7,500 (15% of $50,000) and a seller commission of $10,000 (20% of $50,000.) Auctioneer B on the other hand will have $57,500 total proceeds and earn a buyer’s premium of $7,500 (15% of $50,000) and a seller commission of $11,500 (20% of $57,500.)

In other words, Auctioneer B makes $1,500 more than Auctioneer A since he charges the seller 20% on the auction total including the buyer’s premium than if he charges it on just the hammer price. The difference in the seller commission is 15% — Auctioneer B earns 15% more in seller commission than Auctioneer A.

The formula to calculate this $1,500 as a percentage of hammer price … the seller commission X (here 20%) x the buyer’s premium Y (here 15%) = Z (here 3%). Auctioneer B earns 20% on an additional 15% = 3% of the hammer price.

How would an auctioneer dictate if his seller’s commission is calculated on the auction total including (or excluding) the buyer’s premium? By putting that language in the contract with the seller. Of course, the seller would have to have knowledge of — and consent to — that arrangement to make it binding.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Columbus State Community College, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.

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