If you have attended a public auction in the last 10 years you might have seen where the auction company has added a "Buyer's Premium" to the final bid to determine the sales price,
As the buyer, an additional fee, called a buyer's premium, is issued to the winning bidder, typically as a percentage of the closing bid price. This can range from as little as 1-2% up to 15-20-25%. When you attend your next auction, this should be one of the first questions asked; "Is there a Buyer's Premium?"
As a bidder you must factor in the buyer's premium when deciding how much you are willing to spend on a property or item. In most areas of North America, the auction company is required to clearly show that there is a buyer's premium and the percentage charged if they are charging a buyer's premium.
Naturally as a potential buyer, most people who attend an auction do not like having to pay over and above the final bid. However, a buyer's premium is a common fee in all types of auctions.
A buyer’s premium allows an auction company to create an additional stream of income to cover costs associated with conducting an auction.
For example, if a piece of real estate sells for $100,000 and carries a 10% percent buyer’s premium, the buyer must pay $110,000. This money is paid to the auctioneer conducting the sale. The buyer’s premium should be disclosed to auction bidders prior to the sale. Usually this is how the auctioneer is paid; however, this does not always mean the auctioneer is collecting the full 10%. This percentage could be used to cover a portion of the marketing expense; survey bill or any expenses incurred getting the property ready for auction. In some instances, the auctioneer might return a portion of the buyer’s premium to the seller after the close of the sale or a portion might be paid to a referring broker.
As seller, utilizing a buyer's premium can be a great tool. In some real estate auctions, the seller might be responsible for paying advertising. The seller can often negotiate some of these expenses with the auctioneer, and even offset these costs by using a buyer's premium. For example, a seller may ask an auctioneer to set a buyer's premium at 10 percent rather than having to pay for advertising expenses and a sales commission. In this sense, the buyer pays to offset some of the seller’s expenses.
As buyer, you must calculate this fee into your bidding strategy. All bidders are bidding with the same terms and conditions, which places everyone on an even playing field. Other potential bidders have to adjust their bids just like you.
As a second-generation auctioneer and real estate broker, I have seen the buyer's premium used successfully in many auctions. I have also seen many potential buyers’ refuse to bid because of the buyer's premium. In fact, some people claim they wont even attend an auction if a buyer's premium is charged. Some potential bidders feel like they are being penalized unfairly. It is risk that must be considered. There are many auction companies who refuse to charge a buyer's premium.
In parts of Western Kentucky and Middle Tennessee there are buyers and sellers who are adamant about not using a buyer's premium, while other buyers and sellers prefer it.
While this usually isn't the case, a buyer's premium can sometimes be a seller’s worst enemy. Instead of bidders getting caught up in the emotion and excitement of a bidding frenzy, (which created a higher selling price) they are caught up trying to figure what the buyer's premium fee will be above and beyond their final bid. I have seen firsthand buyer's stop bidding because they are too caught up in the additional fees being charged.
I have also seen property sell $100,000 over appraised value and bidders not even "flinch" about paying a 10% Buyer's Premium.
There are many reasons for a seller to consider a buyer's premium. As the seller, you are in control. Not only is the seller able to negotiate the fee structure he pays the auctioneer, the seller can also negotiate the amount of the buyer’s premium.
Regardless if the buyer or seller pays the commissions and expenses related to an auction, those fees must be paid. As a professional auctioneer and real estate broker we discuss the pros & cons of each, and we will help our seller determine which is best for them. If you are trying to determine which method is best for you - please email or call, we will be glad to supply the facts for you to decide for yourself.
Jay Cash
THE Auctioneer and Real Estate Broker
James R. Cash Auctions and Real Estate
www.jamesrcash.net • jaycash@me.com
615.785.8982
Licensed in Tennessee, Kentucky, Illinois, Indiana and Missouri
Offices in Kentucky and Tennessee
Jay is a Second Generation Auctioneer & Real Estate Broker. Jay is a member of the NAA and serves as President of the Middle TN Auctioneers Group as well as vice-chair of public relations committiee for the Middle Tennessee Association of Realtors. Jay was voted "Murfreesboro Young Professionals" New Member Of The Year. From Real Estate to Estate Settlements, Business Liquidations to Benefit Auctions Jay has the experience and knowledge to get the most for any seller.
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