Abby decides to attend in person an absolute (without reserve) simulcast auction as there are some items that interest her. She drives about 30 miles (gas/wear and tear,) pays to park in a nearby parking garage ($2,) registers to bid and pays $10 for an auction catalog.
She is out-of-pocket at this point about $17 — the nearby gas station got $5 from her, the parking garage owner got $2 from her, and the auctioneer got $10 from her. The seller? Nothing yet, as the auction is starting in about 20 minutes.
The terms of the auction are that there will be a $50 buyer’s premium on each item sold. In other words, if an item sells for $1,000, Abby would pay $1,050. This $50 is going to the auctioneer as memorialized in his contract with his seller: https://mikebrandlyauctioneer.wordpress.com/2022/01/22/auctioneers-and-secret-profits/.
In other words, if Abby buys two items ($1,000 and $750) her total purchase price will be $1,850, plus she paid $17 thus far to participate. Her total expenditures would be $1,867. To buy just one item (the $1,000 lot) she pays at least $1,067. Can this $67 be considered a “minimum bid?”
In this latter example, she bids $1,000 (and since this auction was absolute, there was no minimum bid/offer required) which is what the seller receives. The auctioneer secures this $50 and the other entities noted above received the $17. Absolute auction? We think so.
Let’s change our story slightly in that Abby pays $17 for gas, parking, and a catalog. The $50 buyer’s premium charged for each lot is not going to the auctioneer, but to the seller instead. For the one lot that she purchases for $1,000, her total purchase price is $1,050 which all goes to the seller. Absolute auction? We think not.
If the seller is receiving $50 per lot, this constitutes a minimum the seller is requiring (and receiving) per lot. As such, no lot is being sold for less than $50. Instead of requiring a $50 minimum bid, the auctioneer/seller is in essence adding the minimum bid to each lot subsequent. Either would require a with reserve auction.
Importantly, we have noted any up-front required deposit going to the seller in order to participate would also require a with reserve auction. https://mikebrandlyauctioneer.wordpress.com/2015/07/20/an-absolute-auction-with-a-minimum-qualifying-deposit/.
It appears percentage buyer’s premiums (10%, for example) are distinctly different, as they don’t constitute any certain minimum bid or fixed amount. As such, these could indeed be used for bidder qualification, deposits, buyer’s premiums, and the like in both with reserve and without reserve auctions.
Some auctioneers are sharing buyer’s premiums with their clients. Here too, if the seller is receiving a percentage (of a percentage) of the total buyer’s premiums, this compensation arrangement could be used in both with reserve and without reserve auctions — and only in with reserve auctions with any fixed amounts.
Further, some auctioneers utilize a combination percentage/fixed buyer’s premium. For instance, “10% or $3,000 whichever is greater.” It seems here if the seller was receiving any portion of this buyer’s premium, a with reserve auction would be required. Of course, if the auctioneer keeps it, you could have a with or without reserve auction.
- If the seller receives any consideration beyond the hammer price calculated as (or based upon) a fixed amount, a with reserve auction would be required.
- If the seller receives no consideration beyond the hammer price or any such consideration is strictly calculated as a percentage involving no fixed amounts, this could be a with or without reserve (absolute) auction.
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, Brandly Real Estate & Auction, 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 has served as faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.