Buyer’s premiums have been used in the United States since 1977. There are very few — if any — online auction bidders unfamiliar with this concept, and most live bidders have experienced it as well.
Indeed, when the buyer’s premium began to be used more in the 1980s and 1990s, some buyers objected and avoided those auctions. However, after online auctions started to appear, buyers’ premiums have become widespread and accepted.
Yet, some auctioneers claim it’s still the 1980s (1880s?) and 1990s, and buyers are still avoiding those auctions. The truth of the matter is that’s not true anymore. More importantly, the use of a buyer’s premium is clearly not a disservice to a seller.
As our analysis concluded, a 15% buyer’s premium in lieu of a 15% seller’s commission results in 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.
That complete analysis is here where the seller actually benefits or essentially breaks even: https://mikebrandlyauctioneer.wordpress.com/2011/04/02/the-net-effect-of-the-buyers-premium/.
Do some bidders avoid certain auctions? They sure do, but the buyer’s premium is largely a non-issue. What are those meaningful issues which deter bidders and buyers?
First of all … if those bidders don’t want or need what you are putting up for auction, they won’t participate. On the contrary, if they want or need what you are putting up for auction, they are very likely to participate.
Yet they will still avoid your auction when there’s no prospect of a deal including secret reserves, too high of reserves, and seller confirmation. Further, bidders avoid auctions with any other auctioneer malfeasance such as shill bidding and misrepresentation of property.
Unfamiliar with the prospect of a deal? We first wrote about it here: https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/.
Importantly:
Auctioneers must memorialize in their contracts with sellers any buyer’s premiums being charged, and clearly disclose to all bidders that same additional charge.
The buyer’s premium belongs to the seller unless the contract unquestionably notes otherwise. Auctioneers retaining buyers’ premiums without knowledge and consent constitute a secret profit.
Before any auctioneer tells anyone that a buyer’s premium is a disservice to a seller, unethical or illicit, that auctioneer should realize auction sellers more than likely benefit from its use, and auction buyers are quite accustomed to paying it.
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.
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