Real Estate Auctioneers earn their commission through Buyer’s Premium. It can be helpful to think of Buyer’s Premium like sales tax. It is not a fee that has to be paid separately, it is reflected in the total contract price. Don’t let a buyer’s premium dissuade you from participating in an auction. It’s not merely a commission pool for the auction firm; it’s also a reflection of how your agent is going to be paid.
High Bid + Buyer’s Premium = Total Contract Price
The Buyers Premium is a fee added to the high bid in order to come up with the total purchase price. The auctioneers commissions as well as payments to cooperating brokers usually are taken from this fee. It is a percentage of the high bid ranging from 2% - 15% depending on the marketplace, the auction firm, and the commodity being sold.
It is required by law that if there is a buyer’s premium that must be paid at the auction, the buyer’s premium must be disclosed in the auction Terms and Conditions. Look for other fees the auctioneer or seller might be charging. Some bank auctions have a required percentage the buyer must pay towards closing costs.
The Buyers Premium is not a fixed commission rate. It varies by company and auction property, and is not always indicative of the commission being earned by the auction firm. In each circumstance, the commissions are part of the Total Contract Price and are being paid by the buyer.
“Auction Firm will charge a Buyer’s Premium of Ten percent (10%), which will be added to the high bid and included in the total purchase price paid by the buyer to Seller. If the Property is sold at the auction, Seller shall receive 100% of the high bid and pay the auction firm the Buyer’s Premium. As example, if the high bid is $100,000, the Buyer’s Premium is 10%, and the commission is 10%, then the total purchase price shall be $110,000, and the total commission pool shall be $10,000.”
Does that entire $10,000 go to the auction firm? probably not.
From that $10,000, the buyer’s agent will need to be paid. If there was a referring listing agent, they will be paid a referral fee from the auction firm using this commission pool. In some cases a percentage of this premium may be rebated to the seller to cover some of their advertising costs.
By the way, if you purchase other goods at auction, such as fine art, the auction firm will add a buyer’s premium to the “hammer price” (which is another way to say high-bid).
In every case, make sure you budget for the buyer’s premium in considering your total purchase price. Don’t let a buyer’s premium dissuade you from participating in an auction. It’s not merely a commission pool for the auction firm; it’s also a reflection of how your agent is going to be paid.
Broker / Owner Guerilla Realty and
Vice President Tranzon Fox Auctions
firstname.lastname@example.org / email@example.com