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buyer's premium wth?

went to a local farmland auction thursday. At the auction they anounced there would be A 2% "buyer's premium". I was not a bidder at this auction. In none of the advertising and the postcards that they sent to area landowners was this mentioned. I realize that anything that is announced is the rule, but this one just rubbed everyone the wrong way. It added about 25,000 to the buyer's purchase price on and 80. apparently, it was ok, because the farm sold. the auction co. was called central states and had a local office in our north central iowa town. This might be the trend, but i would not hire them and my heirs will know this , too. just my opinion.

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18 Replies
r3020
Senior Advisor

Re: buyer's premium wth?

Never been to a land auction where they do this but have to a few machinery auctions. Rubs me the wrong way also. It's like they are telling you to pay me to sell you my equipment. If I know ahead of time I won't even go. To be honest I thought the practice had died out.

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Shaggy98
Senior Advisor

Re: buyer's premium wth?

I have hears of some online auction houses charging both the buyer and seller a percentage premium totaling 15%-20% combined. Whenever I bid on something online, I usually call the auction house and ask first hand what additional fees will be charged to me that aren't visual on the current bid.
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Re: buyer's premium wth?

There is a local salvage auction house that does this and it grates me wrong, too.  

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kraft-t
Senior Advisor

Re: buyer's premium wth?

I would ask who they are working for. If they are working for the seller and trying to maximize his return, then they are clearily working for them not me and i'll not be paying their commission. One could bid 10K per acre less the buyers commission. Be interesting to see if they accepted the bid.

 

Another thing I have noticed is real estate agent suggesting that they will work for me in purchasing a house. Hoping of course to get an exclusive status from me as a home buyer. I tell them that if they receive a sales commission from the other guy, I will assume they are working for them.

 

I suppose that the buyer commission is a cutesy way of getting a sales contract with a lower seller commission.

 

 

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Re: buyer's premium wth?

I would be up front and announce to the auctioneer and everyone that all my bids will be minus buyers commission, if refused then I would walk away before bidding started.
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Kay/NC
Honored Advisor

Re: buyer's premium wth?

I always thought the decision to either charge a buyer's premium or not was at the seller's discretion. The costs of the auction are going to be paid, one way or the other.

These guys do a lot more than the few minutes of standing up and chanting to solicit bids. There is the whole process of asvertising to bring in buyers, dealing with legalities, closing the sale, etc. They cannot work for free, which is what some of these posts seem to imply.

I have dealt with buyer's premiums at some estate auctions...usually ten percent. I didn't like it at first, but truthfully, it is a cost of acquiring an item at auction, if the terms are so set.

My position is that no one forces you to bid, so you can take the conditions or leave them.
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Re: buyer's premium wth?

kay , you're absolutely correct with you last statement. I'm just saying that we arent bidding on some $200 antique table here and the prospect of the sellers shifting the cost of a million dollar+ sale to buyers is a bit unusual. (if not in poor taste) By the way, i have purchased farmland on auction and am aware of the costs associated with a farmland auction. this could be a new trend, tho i hope not.

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Kay/NC
Honored Advisor

Re: buyer's premium wth?

Certainly, the magnitude of the premium is magnified on a land auction v a piece of art or furniture. The premium is usually a larger percentage of the smaller purchases, from whatbyou gzuys are posting.

Still, the principle is the same, and the seller decides if he wants to pay for selling his property, or have the buyer pay for it. If you were making the call as a seller, would you want to absorb the $25,000, or make your buyers do it? That would send a grandkid to college for a year or so....
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Re: buyer's premium wth?

The buyers premioum makes it difficult to calculate the bid on the fly.  Sure, there are ways to figure out the bid plus 6% or 12% or wahtever, but it takes another step over just hearing the price.  

 

And, let's suppose you are at an auction that has a 10% buyers surcharge and are bidding on an item that seems to be worth about $1000 on the market.  You're willing to pay $1000 but not more.  The guy next to you also knows it's worth $1000.  So, you bid and quit at  $900 knowing that that comes out to $990 out of your pocket.  The guy next to you smirks and bids $950 and thinks he bought it cheap, until he finds out the price is $1045.  You're both mad.  The auctioneer and seller are happy.  Maybe neither you nor the buyer go to the next sale.  Who wins?  Not the auctioneer in the long run.

 

Who wins when these land auctions get no-saled because there was a reserve you didn't know about?

 

In the end, the best  situation is for the buyers to be bidding on an item that is fully and openly disclosed at prices that are easily understood.

 

In Germany, when you see a price in a store window, that is the amount of money you need.  Taxes, etc. are already added in.  Just like gasoline here.  It's a lot easier to know right up front how much money to take out or budget.

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