Let’s see … Tracy hires an auctioneer to sell her family’s farm equipment and tools including tractors, tillage equipment, mowers, and woodworking items. The auctioneer is charging Tracy 10% seller commission and the auction grosses (buyers pay) $747,500.00. Tracy is rightly expecting a check for $672,750.00.
The settlement for the auction arrives a few weeks later and the check is for $585,000.00. Tracy is sure there’s merely an accounting error and contacts her auctioneer by phone. Her auctioneer tells Tracy that the number is right …
He explains there was a 15% buyer’s premium charged so $97,500.00 was retained by the auctioneer, leaving her a “hammer price” of $650,000.00 and minus 10% seller commission, that’s $650,000.00 – $65,000.00 for a net of $585,000.00.
Before you say that this auctioneer should have told Tracy only the hammer price ($650,000.00) know that such would constitute concealment and misrepresentation — a secret profit: https://mikebrandlyauctioneer.wordpress.com/2022/01/17/buyers-premium-in-the-contract/,
Nonetheless, Tracy checks her contract and there’s no mention of a buyer’s premium being charged nor retained by the (her) auctioneer. Therefore she remains convinced she’s owed $672,750.00 and not $585,000.00. That’s an additional $87,750.00 she feels she is due, and she’s correct that she is owed that.
Indeed, auctioneers typically retain the buyer’s premium — rightly or not, but they are only allowed to collect or retain a buyer’s premium with the seller’s knowledge and consent in their contract. Otherwise, not only would her auctioneer owe her an additional $87,750.00 in proceeds, but also owe her any other amount the buyer’s premium depressed pricing otherwise.
In that “depressed pricing” otherwise, did any buyer adjust his or her bidding lower to compensate for the buyer’s premium? If so, that would be fewer proceeds for Tracy, and without her knowledge and consent, the auctioneer would owe her those additional amounts … however difficult (or nearly impossible) to calculate that would be.
All this auctioneer had to do is discuss with Tracy that he would be charging buyers a 15% buyer’s premium and retaining such (seller proceeds -> auctioneer,) with all that agreed to in the auctioneer/seller contract. In the contract? Auctioneer earns $162,500.00 in commission. Not in the contract? Auctioneer earns $74,750.00 minus likely some unnecessary legal expense.
As such, we agree with Steve Proffit that the buyer’s premium of course belongs to the seller unless the contract says otherwise, and it’s actually the seller paying the auctioneer this buyer’s premium (and all other commissions and expenses, unless the auctioneer pays them himself) even if the auctioneer retains those amounts at the settlement.
Further, sellers and auctioneers should ensure the contract is clear as to if the seller commission is calculated on the hammer price or the total collected which would include the buyer’s premium. In this example, if the 10% was calculated on the total per the contract, the auctioneer would have earned $172,250.00, versus if the 10% is calculated on only the hammer price where the auctioneer would earn $162,500.00.
Lastly — just to be clear it does not matter what the auction total is, for example, if Tracy’s auction totaled $1,121,250.00 or any other number far exceeding expectations — if the buyer’s premium charged is not clearly noted in the contract, along with who it is ultimately being paid to otherwise, it belongs to the seller.
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, RES Auction Services, 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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