, , , , , , , ,

Buyer’s premiums continue to rise. In fact, I’ve heard for years that “nobody pays any attention to them” so why not raise them? Actually, I’m not convinced nobody is paying attention, and rather that people are paying attention to a degree.

Mark Tofts writes about the (collectible) car market and auctions and here is his article concerning our topic today: https://marktofts.blog/2020/11/26/traditional-auction-houses-are-failing-to-deliver-a-worthy-value-proposition-to-collectible-car-buyers/.

In one sense, a buyer’s premium really doesn’t matter — in that, if everyone notices and compensates for them, bid prices adjust accordingly and bidders/buyers are not really affected. If I’m buying (what I believe is) a $1,000 item with a 50% buyer’s premium, then I can only bid $666.67.

Yet, as buyer’s premiums continue to rise, net to seller proceeds continue to fall. In this above example, the seller only gets $666.67 – minus any seller commissions/costs – where if the buyer’s premium was less, the seller would net more, so long as his costs remained constant.

Of course, some bidders/buyers don’t compensate for the buyer’s premium, so they bid $1,000 despite, netting the seller $1,000 minus costs, and the auctioneer a $500 buyer-paid commission. Or do they? If I’ve only got $1,000 to spend, how do I pay $1,500?

Our sense is that buyer’s premiums will reach a plateau and then remain rather constant thereafter. Have we reached that plateau yet? It doesn’t appear so. Will some auctioneers continue to charge it without their seller’s knowledge and consent? https://mikebrandlyauctioneer.wordpress.com/2022/01/17/buyers-premium-in-the-contract/. Let’s hope not.

It is probably worth noting our prior analysis, which shows clearly that a buyer’s premium in lieu of seller commissions may result in about the same — or more — for the seller, but could result in less commission for the auctioneer:

  • 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.

Our complete analysis including the above summary is here: https://mikebrandlyauctioneer.wordpress.com/2011/04/02/the-net-effect-of-the-buyers-premium/. In regard to today’s writing, as buyer’s premiums rise, if more bidders pay attention, auctioneers will actually earn less — which will probably result in buyers paying more (and more) of the costs …

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 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.