Ivankovich

Auctioneers are the only business I’m aware of that gets away with charging a “Buyer’s Premium.” For those unfamiliar with the buyer’s premium, it’s a fee that auctioneers charge over-and-above the final selling price of an auction purchase. With a 10% buyer’s premium on a $1,000 purchase, the buyer must pay the auctioneer not $1,000, but $1,100; with a 15% BP, the purchase price grows to $1,150. Can you imagine having to pay the grocery store, fast food establishment, or gas station a “buyer’s premium” for the privilege of shopping there? We’d revolt … and quickly take our business elsewhere. Yet nearly 50 years after its inception, the buyer’s premium is still with us. Why in the world do we continue to pay it?

First, let’s review how it started. Years ago the major auction houses charged a standard flat-rate commission to their consignors, and let’s say it was 20%. In the 1970’s one of them decided to reduce their consignor commission to 10%, and then charge the buyer the additional 10% in the form of a “10% buyer’s premium”. They were basically making the same amount of money. But this gave them a huge competitive advantage over the other auctioneers.

Put yourself in a consignor’s position. Would you rather consign your treasures to the auctioneer charging a 10% … or a 20% ... commission? The answer is pretty obvious, especially when it appears that the buyer was paying half of the consignor’s commission. The auctioneer with the lower commission started securing the best consignments. And the auctioneer with the best merchandise makes the most money because buyers typically follow the merchandise, and not the auctioneer. The result was that other auctioneers were forced to adapt or lose business. And it didn’t take long for the buyer’s premium to trickle through most of the auction universe.

There was a period when some buyers tried to boycott auctioneers who charged the dreaded buyer’s premium, but it became so prevalent in the industry that buyers had little choice. They were forced to either pay it or forego competing for the best merchandise. Which further emboldened some auction houses to increase their buyer’s premium from 10% … to 15%, 20%, 25% … and occasionally more

So I’ll ask the question again. Why do we still pay the buyer’s premium? Here are a few thoughts

• Some don’t consider it a big deal. Some are so wealthy they don’t worry or care about it.

• Some don’t know about it or don’t understand it. This occasionally happens to novices, but they usually learn quickly after their first check-out surprise.

• Some forget about it when bidding. While this may occasionally occur, I don’t believe it happens all that often with experienced bidders.

• Some anticipate making a profit. And they’re willing to pay a little more and make a little less.

• Most factor it into the purchase price. If they’re willing to spend $1,000 on an item without the premium, they’ll bid up to around $900, plus the 10% premium.

• Most can’t find the same merchandise elsewhere. So they’re forced to bid with the premium, or lose-out on the buying opportunity.

•Most just consider it a cost of doing business. And in order to compete for the best merchandise, they have no choice. Pay it. Or lose out.

WHAT’S IT WORTH? Some buyers feel that auctioneers are greedy. Auctioneers claim that the buyer’s premium makes them more competitive in securing quality business. I’m a regular buyer at auctions, and I’m also a licensed auctioneer, so I can see things from both sides. And in the interest of fairness, I too went with the pack and charged a 10% buyer’s premium when I was running auctions.

But how much higher can it go? Some years ago I spoke at an auctioneers convention and asked them this question. “How much higher can the buyer’s premium go before people finally revolt and reject the practice?” None suggested that they might ever lower it. And if it’s already gone from 10%-to-25%, could the buyer’s premium ever reach 35%, 50%, or even 100%? With the way things are going, any of these levels are possible. And the only thing that might prevent it is when the buying public revolts and finally says “enough is enough”.

Mike Ivankovich is an Auctioneer, Appraiser, Home Downsizing Expert, and host of the “What’s It Worth? Ask Mike the Appraiser” Radio Show. Now in its 8th year, “What’s It Worth” airs live in the Philadelphia PA area on Friday mornings from 9:30-10:30 AM EST on WBCB 1490 AM, and on the Internet at: www.WBCB1490.com. Mike offers House & Estate Contents Appraisals nationally through his www.ZoomFacetimeAppraisals.com web site, and he has presented his “What’s It Worth” Zoom Appraisal Program in 24 states. Details on how your group can book Mike can be found at: