Is it fair to say that seller commissions are getting smaller, and buyer premiums are getting larger? While not universal, in cases such as this, is the reason that it’s “easier to extract a surcharge from inexperienced retail buyers than from professional sellers?”
Of course, not all retail buyers are inexperienced, and not all sellers are professional. However, our question is generally who is willing to pay more? It seems reasonable that people with less market information pay more and those with more market information demand to pay less.
It seems clear that auctioneers are tending to charge sellers a bit less (or nothing) and in turn charge buyers an increasingly material buyer’s premium (charge.) Many auctioneers are telling me that low or no seller commissions allow them to find sellers, and buyers will pay whatever additional charge is present — regardless.
… and if you think seller commissions have gone to -0- I have one more for you: Many auctioneers are now giving the seller part of the buyer’s premium. In other words, the seller may be paid 105% or 110% of the hammer price; yes, sellers being paid in excess of the bid price to consign.
Beginning in 1975, Christie’s and Sotheby’s introduced the buyer’s premium in England, and soon after (1977) in the United States. This allowed the auctioneer to have the buyer supplement his income with an additional commission. It didn’t take long for other auctioneers to follow suit.
As seller commission rates have in fact become smaller, they have become even smaller as sellers frequently shop around for the lowest price (accompanied by the best service) and thus buyer charges are becoming in some markets essentially mandatory.
Except, as we’ve repeatedly noted, buyers — particularly regarding high dollar property — figure in the buyer’s premium and thus bid less, acting in a way as an indirect seller commission.
We’ve written about the buyer’s premium numerous times including here: https://mikebrandlyauctioneer.wordpress.com/2011/04/02/the-net-effect-of-the-buyers-premium/ where we noted the following:
- If bidders disregard the buyer’s premium when bidding, the same buyer’s premium nets the seller and auctioneer more.
- If bidders correctly calculate the effect of the buyer’s premium, the seller nets a bit more, and the auctioneer earns a bit less.
- If bidders miscalculate the effect of the buyer’s premium, the seller nets about the same, and the auctioneer earns less.
Is it easier to charge buyers than sellers? It seems it is — especially sophisticated sellers. However, as some auctioneers are telling me, they charge both the buyer and the seller as they seem equally inexperienced.
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.