The Real Estate Auction & Buyers Premium
Buyer's Premium? What the heck is that?
A unique opportunity an auction for real estate provides is the ability to use a buyer's premium, which is usually accounted for offset some or all of the seller's auction transaction costs, marketing expenses and commissions.
The buyer's premium is an additional amount that is added to the high bid price to determine the total contract price the buyer will pay to the seller at closing. The agreement between seller and broker / auctioneer provides the particular percentage of the buyer's premium that is paid to the broker / auctioneer by the seller at the close of escrow.
In an active and aggressive bidding environment, the buyer's premium is perceived by bidders almost as a sales tax or simply a cost of doing business and can lead to higher net made for the seller. Specified buyer's premium can range from 3 percent to 10 percent of the bid price and is an accepted part of the process through the auction industry.
The buyer's premium allows the seller to increase the gross sales price and is a way for the seller to transfer transaction costs onto the buyer. When implemented properly, the seller's total effective transaction costs (marketing expenses plus commission) can be less than that of a traditional brokerage sale. In fact, the goal is a "expenseless" transaction on the seller's side of the closing sheet. This can be especially desirable for the sale of real property held by the estate.
Would not you prefer to take home more of the transaction, rather than less?
Omar P. Bounds III AARE, CES, GPPA – The Bounds Auction Company