We wrote about auctioneers purchasing and not paying any less nor more than anyone else, despite charging commission. That treatise can be read here: https://mikebrandlyauctioneer.wordpress.com/2014/08/25/auctioneer-doesnt-pay-full-price/.
We offered in the above referenced story that a seller commission nor a buyer’s premium made any difference. The auctioneer buying doesn’t receive any discount over any other buyer, despite earning commission.
Today, we explore if the auctioneer charged both seller commission and a buyer’s premium. What then? Would the auctioneer buying under these conditions pay less than any other buyer? He or she would not.
Here’s an example: Let’s look at this perception issue with both a 10% buyer’s premium and a 20% seller commission:
- Someone else buys the vase for $12.50. The buyer pays me $13.75. I earn $1.25 in buyer’s premium and $2.50 in seller commission for a total of $3.75. My seller receives $10.00.
- I buy the vase for $12.50. I pay my seller $10.00 and take the vase home.
My customer says, “See, anyone else pays $13.75, and you only pay $12.50.” And it does seem so, but let’s take a closer look, focusing on the sale of this one item.
- If I start the evening with $100 in my pocket, and someone else buys the vase for $13.75, I go home with $103.75 in my pocket.
- If I start the evening with $100 in my pocket, and I buy the vase, I go home with $90.00 in my pocket.
What’s the difference in these two scenarios ($103.75 minus $90.00?) $13.75 — the actual purchase price ($12.50 + 10%). In other words, I can go home with the $103.75 in my pocket and no vase, or go home with the vase and $90.00 in my pocket.
The “gist” of this misconception is that the auctioneer is credited his or her commission as a discount. The actuality is the auctioneer is also forgoing paying that commission as part of the sale price and therefore it’s a net zero, but still has to pay the seller the net amount due. Otherwise, if someone else buys, the auctioneer earns the commission, but not the property.
It may be worth saying again — anytime an auctioneer in an agency relationship with a seller (and charging seller commission and/or buyer’s premium,) and that auctioneer buys something at that same auction, he or she receives no discount due to the collection of any sort of commission.
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, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.