Buyer’s premiums have been used at auctions in the United States since 1977 — over 40 years. Yet, there remain many misunderstandings about buyers’ premiums. We address the five most material misunderstandings here:
Any auctioneer who’s charging a buyer’s premium must have their client’s (seller, owner, consignee) permission to do so. Such permission should be memorialized in the auctioneer’s contract with his or her client including both the amount(s) and the exact method in which they will be executed.
Any auctioneer who is charging a buyer’s premium must inform all bidders prior to all bidding, including both the amount(s) and the exact method in which they will be executed.
The buyer’s premium is part of the purchase price and is therefore paid by the buyer to the seller. All buyer’s premiums belong to the seller (client) unless the seller agrees to pay these monies to the auctioneer (or allows the auctioneer to retain such.)
Auctioneers say “Nobody pays any attention to it, and bid regardless.” Our response? Then why not raise it to 50%, 100%, 1,000%? If it doesn’t matter, you aren’t charging enough.
When buyer’s premiums are charged in lieu of seller commissions, and bidders “disregard” the buyer’s premiums, auctioneers generally make more commission; however, when bidders correctly calculate (or miscalculate) the buyer’s premiums, auctioneers generally make less in commission.
I’ve met auctioneers who say, “I don’t have to tell my seller I’m charging a buyer’s premium, and the bidders don’t have any right to know my policy … and the buyer’s premium belongs to me and bidders do largely miscalculate it, and I make far more that way than charging my seller …” This entire drivel is incorrect.
Most notably, #5 above might not be intuitive …
Say an item sells for $1,000,000 with 10% seller commission — that’s $100,000 in auctioneer commission. However, if the buyer correctly calculates the same buyer’s premium (10%) and bids only $909,090.91, the auctioneer only makes $90,909.10 in commission (over $9,000 less) and if the buyer miscalculates the buyer’s premium and bids only $900,000, the auctioneer makes only $90,000 in commission ($10,000 less.)
All auctioneers should be cautious not to charge and/or keep (retain) any buyer’s premium without their client’s knowledge and consent. https://mikebrandlyauctioneer.wordpress.com/2022/01/22/auctioneers-and-secret-profits/. Equally important, auctioneers should put such knowledge and consent (disclosure) in the written contract with the client. https://mikebrandlyauctioneer.wordpress.com/2016/04/19/auctioneers-always-written-contracts/.
If you are an auctioneer and have seen that the buyer’s premium “belongs to you,” because that’s how it is customarily done, be sure to note that without your client’s knowledge and consent, you cannot charge nor keep (retain) a buyer’s premium.
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 is 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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