You are an auctioneer and you don’t charge a buyer’s premium. Why not? I continue to hear that charging such is a disservice, unethical, greedy, “not the right thing to do” and the like. My question is … why specifically aren’t you charging it?
We’ve argued that buyers are increasingly aware of the additional charge, but that doesn’t mean everyone is. Here are three examples considering all those buyers, where a buyer’s premium in lieu of a like seller commission almost always earns the seller more:
Let’s say the buyer doesn’t consider the buyer’s premium and so his high bid is $10,000 in all cases. Here the seller is earning more as the buyer is paying more and the seller is paying less.
Seller 30%, Buyer 0% The high bid is $10,000. The seller nets $7,000 and the auctioneer receives $3,000.
Seller 25%, Buyer 5%: The high bid is $10,000. The seller nets $7,500 and the auctioneer receives $3,000.
Seller 20%, Buyer 10%, The high bid is $10,000. The seller nets $8,000 and the auctioneer receives $3,000.
Seller 15%, Buyer 15%: The high bid is $10,000. The seller nets $8,500 and the auctioneer receives $3,000.
Seller 10%, Buyer 20%: The high bid is $10,000. The seller nets $9,000 and the auctioneer receives $3,000.
Seller 5%, Buyer 25%: The high bid is $10,000. The seller nets $9,500 and the auctioneer receives $3,000.
Seller 0%, Buyer 30%: The high bid is $10,000. The seller nets $10,000 and the auctioneer receives $3,000.
Let’s say the buyer does consider the buyer’s premium and correctly figures in his high bid so his total purchase price is $10,000. Here the seller is earning more as the buyer is paying more and the seller is paying less.
Seller 30%, Buyer 0%: The high bid is $10,000. The seller nets $7,000 and the auctioneer receives $3,000.
Seller 25%, Buyer 5%: The high bid is $9,523.81. The seller nets $7,142.86 and the auctioneer receives $2,857.14.
Seller 20%, Buyer 10%: The high bid is $9,090.91. The seller nets $7,272.73 and the auctioneer receives $2,727.27.
Seller 15%, Buyer 15%: The high bid is $8,695.65. The seller nets $7,391.30 and the auctioneer receives $2,608.70.
Seller 10%, Buyer 20%: The high bid is $8,333.33. The seller nets $7,500 and the auctioneer receives $2,500.
Seller 5%, Buyer 25%: The high bid is $8,000. The seller nets $7,600 and the auctioneer receives $2,400.
Seller 0%, Buyer 30%: The high bid is $7,692.31. The seller nets $7,692.31 and the auctioneer receives $2,307.69.
Let’s say the buyer does consider the buyer’s premium and incorrectly figures in his high bid so his total purchase price is less than $10,000. Here the seller is earning more (or the same in #7) as the buyer is paying more and the seller is paying less.
Seller 30%, Buyer 0%: The high bid is $10,000. The seller nets $7,000 and the auctioneer receives $3,000.
Seller 25%, Buyer 5%: The high bid is $9,500. The seller nets $7,125 and the auctioneer receives $2,850.
Seller 20%, Buyer 10%: the high bid is $9,000. The seller nets $7,200 and the auctioneer receives $2,700.
Seller 15%, Buyer 15%: The high bid is $8,500. The seller nets $7,225 and the auctioneer receives $2,550.
Seller 10%, Buyer 20%: The high bid is $8,000. The seller nets $7,200 and the auctioneer receives $2,400.
Seller 5%, Buyer 25%: The high bid is $7,500. The seller nets $7,125 and the auctioneer receives $2,250.
Seller 0%, Buyer 30%: The high bid is $7,000. The seller nets $7,000 and the auctioneer receives $2,100.
Our analysis makes two assumptions: (1) the auctioneer has the right to retain the buyer’s premium, and (2) the seller’s commission is based on the hammer price, not the total purchase price.
The issue with many auctioneers is that seller commissions are getting so high, sellers are looking for other ways to sell their real and personal property. By lowering the seller-side commission, sellers more easily engage, and as such, if the commission total is the same, sellers almost always benefit.
I should probably point out — for those not paying attention — sellers not hiring you results in -0- commission. If this same seller hired you at a lower commission, and you charged the buyer the remainder, you now have two things: A seller and a commission.
In summary, if you keep your total commission the same, and move some or all over for the buyer to pay, it isn’t disservice, unethical, greedy, nor “not the right thing to do” and rather beneficial to your seller — aligning with your fiduciary duty of loyalty and reasonable care.
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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