Buyer’s Premium Dynamics

April 17th, 2007 by PA - Bloger

BP – Buyer’s Premium – A “Buyer’s Premium” is a fee charged by the real property auctioneer in addition to the successful bid or “hammer price” according to the rate defined in the real property auctions sale terms and conditions. Every Real Property auctioneer and those interested in real property auctions should read an article by Steve Proffitt about Auction Law and Ethics. His article Don’t You Just Love the Buyer’s Premium? offers an historic review of the auction process bringing out the details from the last century of auctioneer history to explain the pros and cons of the buyer’s premium.

The buyer’s premium, expressed as a percentage of the winning bid, is an additional cost to the purchaser and is payable by the purchaser as part of the total purchase price. This is the auctioneer’s fee and a portion of it is sometimes used to help pay for some of the auction marketing expenses that the seller may not have covered or as a payback to the seller for their initial outlay for marketing. In addition, this fee may be used to pay cooperating brokers that bring their clients to an auction who successfully make the purchase. It should be noted that in some areas of the country such as Colorado and Minnesota, local auctioneers are charging the seller the auctioneer fee similar to the standard broker’s commission. However, the trend for auctioneers has certainly been to switch to the buyer’s premium.

The North Carolina Auctioneer Licensing Board offers this detailed definition and regulation of the BP in their Auction Terminology section of their website.
“Buyer’s Premium”
A fee charged to buyers at some auctions. The buyer’s premium is a percentage that is added to the last or final bid amount to determine the actual selling price. If the item selling is personal property, the sales tax is figured on the bid price plus the premium. If the item is real estate, the sale price (what is recorded on the deed) is the bid price plus the premium. Using the buyer’s premium is the seller’s decision and should be clearly stated in the auction contract. The buyer’s premium is paid over to the seller, unless the seller transfers this right over to the auctioneer or auction firm in the auction contract. At all auctions that include a buyer’s premium, the amount of the buyer’s premium shall be announced at the beginning of the auction and a written notice of this information shall be conspicuously displayed or distributed to the public at the auction site.

As Steve Proffitt explains, today’s auctioneer faces overhead and marketing costs for the seller that might discourage a seller from using real property auction to move their property. By charging the seller a smaller fee for the marketing and auction expenses, the auctioneer, “still covers expenses and makes a reasonable return or profit by adding the BP”.

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