Buyers Premium at Auction
or Real Estate Sale now What is it Exactly?
The buyers premium has been used for over 40 years now as a way to offset seller expenses for marketing a property. First used in London in 1975 it was 10%. Throughout the years the percentage of a buyers premium has varied depending upon the auctioneer and/or type of auction. Now dependent upon the type of asset being sold, the premium could be as high as 20 or 25 percent. These terms are set by the seller and the auctioneer. Consequently, the main thing to be cautious of is the appropriate disclosure made by the auctioneer. What is the actual buyers fee that is added to the bid price? In most states auctioneers must disclose the premium paid by the buyer in advance of the sale. Advance of the sale means anytime prior to the auctioneer actually selling the item.
Why is There a Buyers Premium at Auction or Real Estate Sale?
Now, let’s face it, we all have to make money in business. The buyers premium is one way an auctioneer makes money. The auctioneer’s job is to find the correct market price. This takes a buyer willing, ready and able to purchase for a price the sellers are willing to accept. Then at auction the seller is looking for the highest and best price with reduced expenses of the sale. The seller wants to net as much money as possible. So the buyers premium when paid by the buyer helps the seller accomplish this. The buyer could actually still make the best deal with the premium paid. Truly, this happens every day in multiples of auctions across the planet.
Buyer pays Premium at Auction: Does it Cost the Buyer More Money?
What is that you say? Hold on…this is costing the buyer more money. As a matter of fact, it comes down to the willingness of the best buyer to pay just a little higher than others in the market. The amount of the buyers premium is announced prior to the start of the auction by the auctioneer. Additionally, the amount of the buyers premium is made clear on the statement of sale. Accordingly, in most states taxes are calculated on the bid plus the buyers premium. For example, the bid is 100.00, BP is 10% equals 110.00. The 110 dollars is now taxable. On the other hand, the buyers says it is costing me money. Well now, look at this example. For instance, a bidder knows they will pay 100 dollars for the item. Indeed, think about the buyers premium.
Now then, think and calculate and bid 90 bucks. Also figure into the bid a 10% BP, your total that you will pay less tax is 99 DOLLARS… the Auctioneer may have saved you some money if you were the winner. Ok so you bid one more time at 95 dollars. So your final tally before tax is 104.50. In just the same way, you may have bid a little more. In all actuality, the payment is only paid $4.50 more than originally planned.
Buyers Premium at Auction and its Impact on Negotiating the Sale
In fact, let’s take a look from the start. The offer and acceptance. In most cases a seller may always say no to any offer. However, it has been proven time after time that when a seller sees multiple offers they are more willing to negotiate. Of course the conditions of the sale must be fair to all prospective buyers. In a normal situation a seller can see that the best offer was made including the buyers premium. The seller may see the offer as a solid high bid with the buyer paying the expenses of the sale such as closing costs and buyers premiums.
Does the Buyer Premium at Auction Work for the Sellers and for the Buyers?
This has been the conclusion for many auctioneers for decades. In fact, it is found that a buyer will pay the additional fees if the asset warrants paying more in connection with the purchase. More over, in the competitive price wars the high bidder determines the final offering and sales price. Likewise, take this into consideration, as you are bidding on any property, car or other item that it is competition, negotiation, what other buyers are willing to pay. Of course you must take this into consideration as you may determine what you are willing to pay.
Who used the BP first?
There are many stories about where, who and why. One that can be certain is that Jim Gall with Auction Company of America was one of the first auctioneers to use the BP. Based in Miami, Florida this Hall of Fame Member and three Time Champion Auctioneer, long time member of the Florida Auctioneers Association was a pioneer in many aspects of the Auction Industry. Equally important he had trained many professional auctioneers, giving his time and talents and yes began using the buyer premium in the early 90’s. Jim has sold some of the highest priced real estate anywhere in America. He has sold important artifacts, valuable antiques from the Sunshine State to Idaho. The cost was hardly ever a factor in the sales Jim conducted nationwide.
When you are in need of an auctioneer to sell your home and/or land or personal property or for your fundraiser, contact me America’s Auctioneer Myers Jackson. Simply call 844-400-AUCTION – that’s 844-400-2828 or click “Contact“.