, , , , , , , ,

The buyer’s premium was introduced in the United States in 1977. Since then, auctioneers have increasingly used the buyer’s premium to offset lower seller commissions and/or increased auctioneer profits. There is nothing wrong with charging (or not charging) a buyer’s premium.

However, over 40 years of the buyer’s premium has educated the public to the point that most figure it in when bidding. In other words, if they don’t want to bid over $100,000 and there is a 10% buyer’s premium in effect, their maximum bid has to be less — actually $90,909.09.

Many auctioneers maintain today that “buyers do not figure it in — they bid the same regardless.” I would only say that online (and live) auctions utilizing a buyer’s premium have made this surcharge well understood in the marketplace and nearly everyone is holding a calculator in their hands today.

The mathematics are straightforward: If an auctioneer sells a $100,000 lot with a 10% seller commission, the commission is $10,000. If on the other hand a 10% buyer’s premium is used instead of the 10% seller commission, the auctioneer only makes $9,090.91 if the bidder/buyer accurately figures it in.

Even if an auctioneer charges the seller and buyers — there is an effect. For a 10% seller commission and 10% buyer’s premium, with disregard for the buyer’s premium, the commission on $100,000 — in the simplest calculation — is $20,000. If however, if it is figured in, the total commission drops to $18,181.82.

Further, it’s not only the high bidder we need to worry about here — if the second highest bidder has figured it in then his bidding is limited in this fashion and thus the high bidder is not pushed but one more increment even if he is unmindful of the additional charge.

Let’s just say “Harry” is an auction buyer and he’s buys primarily to resell. He focuses on property in the $100 value or less for his eBay listings and small shop in the nearby mall. The hammer price of his purchases at the “Thursday night” auction was $750 but his total bill with a 10% buyer’s premium is $825.

Now, does Harry remember next Thursday about that 10% charge. It seems to me he likely does. His lower bids next time directly effect other bidding and the seller/auctioneer’s profits. Even if he forgets about it this next Thursday … does he continue to forget every Thursday? I can almost say for sure he doesn’t.

Admittedly, many auction markets are local or regional — so if you are an auctioneer not noticing bidders cognizant of the buyer’s premium in their bidding, I would stay tuned for increased awareness.

Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.