Buyer's premium
A buyer's premium is a percentage added to the winning bid, paid by the buyer on top of the hammer price.
It funds the auctioneer, and it means the number called is not the number paid.
Work backwards from your total#
The arithmetic that matters, and the one bidders get wrong in the room.
Decide the maximum total you are willing to pay for the property — including the premium, the closing costs and anything else due.
Then reduce it by the premium to find your maximum bid.
A bidder who sets a limit and then bids to it has committed to paying more than their limit, by the premium, without noticing. In an auction room, at speed, that is exactly what happens.
It is disclosed in advance#
In the terms of sale, published before the auction.
Those terms also state the deposit required, when the balance is due, what happens on default, and what condition the property is sold in. They are the contract, and they are not negotiable on the day.
Reading them beforehand is the whole of the preparation a bidder can do on the commercial terms — the rest of the preparation is on the property itself.
Other costs on top#
The premium is rarely the only addition.
Documentary and administrative fees. Recording costs. Sometimes a technology or online-bidding fee. Occasionally the seller's costs, where the terms shift them.
Each is small. Together they move the effective price by enough to matter on a marginal deal, and they are all in the terms of sale.
Minnesota sheriff's sales#
No buyer's premium.
A sheriff's sale is a statutory proceeding, not a commercial auction. The mechanics differ throughout — the bid is the price, the sheriff conducts the sale, and what is conveyed is a certificate rather than a deed.
That distinction is worth holding, because a bidder moving between commercial auctions and sheriff's sales is moving between two processes that resemble each other superficially and share almost nothing procedurally.
Who actually pays it#
Economically, the seller — in most cases.
A bidder who knows a premium applies bids lower by roughly that amount, because what they care about is the total they part with. The hammer price falls, the premium is added back, and the seller nets close to what they would have received without one.
Which raises the obvious question of why the structure exists at all. The answer is presentation: a lower hammer price reads better in results, and the auctioneer is paid by the buyer rather than deducted from the seller's proceeds.
That is not a criticism, and it is worth understanding when comparing a hammer price at auction against an asking price on the open market. They are not the same number.
Check whether it applies to the deposit#
A detail in the terms of sale that catches people at the cashier's desk.
Some auctions calculate the required deposit on the hammer price and some on the total including premium. On a large purchase that difference is real money, due on the day, in cleared funds.