The use of a buyer's premium is a way of paying the Auctioneer for his or her services. The buyer's premium shifts the payment of the Auctioneer's commission from the seller to the buyer at auction.
The buyer's premium is a fixed percentage of the sales price that is collected from a successful bidder in addition to the amount of the successful bid. For example, if the highest bid at a real estate auction is $200,000, and the buyer's premium is 10%, the sales contract will be written up for $220,000.
Auctioneers traditionally have been compensated through the payment of a commission paid by the seller, which is normally based on the total auction proceeds. An estate auction that includes both real and personal property is a good example.
As an alternative to this commission based fee structure, the Auctioneer and the seller will often agree to reduce or eliminate the commission paid by the seller and instead agree that the Auctioneer will be either partially or fully compensated through the retention of a fee levied against the successful buyer at auction by way of a "buyer's premium.
The buyer's premium is a matter of choice. The buyer's premium is used only when the Auctioneer and seller agree to it in their contract. Auctioneers and sellers have to decide when to use it. The "buyer's premium" disclosure is announced in the advertisement under "terms and conditions of the sale" in addition to the announcement at auction. Most auctioneers have potential buyers /bidders sign a statement before bidding that they understand that a buyer's premium will be added to the final and highest bid.
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