I attended an auction of a residential property I was interested to purchase with about 12 other registered bidders. The approximate value was $150,000 and there was a 10% buyer’s premium in place. The terms clearly stated this 10% charge; the auctioneer also announced it prior to bidding.
The bidding reached $130,000 (I wasn’t bidding) and the auctioneer was asking $135,000. The other bidder who had bid $125,000 didn’t want to bid $135,000 because with the 10% charge, his final bid would be over his budget of $148,000. Eventually, the home sold for $130,000 + 10%, or $143,000.
The high bidder approached the registration table to tender his $5,000 deposit and sign the paperwork, exclaiming, “Wow, I got a deal … I was willing to go as high as $150,000 if necessary.” The auctioneer replied, “Yes, you could have bid $150,000 but that would have been $165,000” — to which he said, “Oh, that’s right, I forgot about the buyer’s premium.”
What’s the point of our story here? While the high bidder forgot about the buyer’s premium, the backup bidder didn’t. Had the backup bidder also forgot about the buyer’s premium, he would have bid again pushing the high bidder to maybe $150,000 + 10% or $165,000.
Of course, as we’ve written, auctions realize the seller the highest bid, but not necessarily the highest price that high bidder would have paid: https://mikebrandlyauctioneer.wordpress.com/2018/10/01/the-highest-price-or-the-highest-offer/. It’s important to note no sale of anything necessarily maximizes all the seller is willing to pay …
Do buyer’s premiums matter to bidders? Do buyer’s premiums matter to sellers? Do buyer’s premiums matter to auctioneers? Our comprehensive treatise on that subject is here: https://mikebrandlyauctioneer.wordpress.com/2011/04/02/the-net-effect-of-the-buyers-premium/.
Auctioneers are increasingly charging a buyer’s premium, and the buyer’s premium percentages continue to rise. Many auction bidders consider the buyer’s premium pedestrian as they’ve grown accustomed to it. However, do they bid less as a result? There’s no question some do.
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.