What is a Buyer’s Premium and why do Auction Houses charge them?

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A lot of people don’t understand what a buyer’s premium is or why auction houses even charge them. Not every auction house will charge a buyer’s premium, however, more and more auction houses are choosing to charge a premium.

So what exactly IS a buyer’s premium? Simply put, a buyer’s premium is an additional charge, usually a straight percentage, that a buyer is charged based on the hammer price. This becomes the actual price that the buyer is charged for the item when checking out. For example, if Bob is the winning bidder on a table and chair set that he bid $100 on, and the buyer’s premium is 10% for that particular auction, Bob will actually pay $110 for the item plus any other fees charged by the auction house such as sales tax. Remember, the buyer’s premium is an additional charge, not an additional tax.

While auction houses are pretty quiet about the commissions they charge to seller, they do advertise what the buyer’s premiums are going to be. Not every auction house calls it a buyer’s premium. Some auction houses try to get creative and call it things like a “Service Fee”, or a “commission”. Whatever the auction house decides to call it, it still serves the same purpose. Regardless of what they name they give it, U.S. taxing authorities call the buyer’s premium part of an item’s sale price. This is because it’s rolled into the hammer price and the total amount becomes taxable.

Buyer’s premiums are not a new idea and have actually been used on and off throughout history. The buyer’s premium was a feature in Roman auctions during the reign of Augustus when buyers were required to pay a one percent tax on purchases. The modern times the buyer’s premium was introduced by Christie’s and Sotheby’s in London in September 1975 and in the United States is 1977.  While major auction houses (like Sotheby’s) will even charge up to 25% on items, most smaller auction houses charge anywhere between 1%-15%. The amount of the buyer’s premium will normally be clearly stated in the auction house terms and conditions. Some Auction Houses like Hueckman Auction only charge a buyer’s premium at their auction house, but do not charge them at the auctions that are on location.

The buyer’s premium is considered to be a necessary contribution to the costs of the administrative process for the auction house. Yet many members of the auction community consider it an unreasonable extra charge by the auction house because they do not fully understand why they are charged. Buyers often think this is just another way to get more money out of them. Auction houses sometimes market themselves as “not charging a premium” to gain favor with customers. Regardless, buyer premiums are now becoming a commonplace at auctions and they will continue to grow. In fact, about 80% of all auction now charge some sort of buyer’s premium.

But why charge a buyer’s premium anyway? There are several reasons an auction house may choose to charge a buyer’s premium. For most auction houses, especially smaller ones, the buyer’s premium helps to cover the costs of running the auction house and its ongoing auctions. There are many costs that go into an auction house that people don’t consider or even know about. These costs include building rental, heating & air conditioning so customers stay comfortable during the auction, auction software (to keep track of items for both the seller and the buyer), advertising & marketing, staff wages, auction house set-up, time spent taking pictures and creating on-line catalogs for the auction, and general upkeep of electronic equipment.

Hopefully, this blog gave you a bit more of an understanding about buyer’s premiums and why auction houses choose to implement them. Happy auctioning!

33 thoughts on “What is a Buyer’s Premium and why do Auction Houses charge them?

  1. I think the buyers premium is not necessary, it is just another way to increase profits over what the seller pays. I have seen percentages that the seller pays to consign sale items to the auctioneer, as much as 30%. I have also seen a 30% buyers premium tacked on just so the auctioneer can reap a 60% commission on a auction. To me, this amounts to price gauging and should be regulated. For me, I only attend auctions where the buyer is not penalized with a buyers premium. I would hope that the trend to boycott auctions, with buyer premiums, continue. Call it what you may, it is simply a tax on a tax regardless who receives it.

  2. Then collect the money from the person or persons or company that brought the item to be auctioned off! Why penalize or charge the buyer! Would be like buying a car and the dealership adds a 20% buyers premium so the salesman can collect his commission

    1. E Eichler, I don’t think that buyer’s premiums penalize the buyer. Personally, I think that the total price (hammer price plus buyer’s premium) is about the same as if there were no buyer’s premiums. There are differing opinions on this.
      The buyer’s premium has become customary, especially when it comes to online auctions. At least for us, we have to do what is customary.
      Regards,
      Scott Hueckman

      1. “At least for us, we have to do what is customary.”

        Or you could do what is right? BP’s are double dipping. There is no way to talk around it. Just be honest with yourself. I may not like auction companies that charge it, but I can at least respect those that say “we just want more money” and not this sad dance we’re witnessing.

      2. If a bidder will pay a maximum of $100 then if a buyers fee is 10% then bidder will go to $90 to allow for this. In effect this really only hurts the seller who would therefore do well to consider the buyer’s premiums. It is double-dipping but the alternative would be to charge the seller as much as 30%. Bear in mind that Tax is also charged on premiums though often not stated by auction houses

      3. I understand the buyers premium to a certain extent. I don’t believe in the buyers premium if and is most always a Seller’s premium is also charged. So the auction house walks away with sometimes over 50% of the price of the item. Auction houses can charge 35% to the seller, 10% – 18% or higher for Buyer premium. But what really is a concern is why does the buyer pay a State sales tax on the buyer’s premium charge. The buyers premium to my understanding should be the business expense category. Why are we paying a sales tax on the combined price of what the hammer says and then the buyers premium total too. When the taxes are calculated at income tax time there is the difference of gross and net income.

  3. Buyer’s Premiums should be illegal. It’s just a way for the auction company to double dip on their commission by charging separate fees to both the seller and the purchaser.

    1. L.A.
      I disagree that this is a “double dip” situation. Actually, it usually is used to attract sellers by offering them a lower commission rate as compared to the few companies that don’t charge buyer’s premiums.
      Personally, I think that the total price (hammer price plus buyer’s premium) is about the same as if there were no buyer’s premiums. In other words, the consigner will net the same and the buyer will pay the same, no matter how the fees are charged.
      Regards,
      Scott Hueckman

      1. Personally, I think that the total price (hammer price plus buyer’s premium) is about the same as if there were no buyer’s premiums. In other words, the consigner will net the same and the buyer will pay the same, no matter how the fees are charged.
        That statement is like the disappearing penny. How in hell can it be the same? It’s a fee that should not be charged to any buyer. You collect costs from the SELLER and it is up to the auction house to get the best price possible on the day for an item. I now do not go to any auction house that advertises a Buyers Premium. Thdey can go to hell and back before i will pay them more than the bid price. THIEVES as far as i am concerned. If the public band together and boycott these auctions then the practice would soon be stopped.

        1. A rip off for the buyer and seller. Seller get less because the buyer will pay less based on the amount of the commision being charged. FIre them , and send a message no more buyer’s commisions!!

        2. A buyer’s premium seems to be a way for an auction house to extract their operation costs from buyers, which, no matter how they try to present it, still amounts to a way of increasing their profits by saddling their buyers with the auction house’s cost of doing business. This, to me, amounts to a greedy grab, hence, auctions are becoming much less attractive.

        3. Next time you go to a grocery store and ask to buy a gallon of milk, demand to know the store’s markup and then refuse to pay it. Use the argument, “you should be charging the milk company to have that milk in the store.” See what they say.

      2. Be that as it may, the “buyer’s premium” is just another form of passing off the cost of doing business to buyers—if not monetarily, then in attitude. There’s generally no need to itemize the separate things that go into making up the total amount that a business has to charge in order to pay their expenses and turn a profit.

        Really, the same goes for tax. Even though tax is applied to merchandise or services, it’s the seller’s responsibility to see that the government receives the appropriate amount from what monies they take in, so why not just figure it into the sticker price? The Brits got that right, at least, IMO.

        Anything else feeds a growing sense of outrage within the populace, a sneaking suspicion that they’ve somehow been taken advantage of. And they have. If nothing else, they have been deprived of the satisfaction that comes from feeling they have been dealt with above board, and treated with total honesty.

        It all gets back to companies and corporations justifying any business practice, no matter how ethically twisted, if it nets them more money. The absence of straight ethical practice has become the norm around the world. And when Christy’s and Sotheby’s start doing it, well then, how are other auction houses going to be able to resist the sea change? It’s just a matter of time till everyone else falls in line, like it or not. You said it yourself, Scott: “The buyer’s premium has become customary, especially when it comes to online auctions. At least for us, we have to do what is customary.”

        So, although I understand what you’re saying, I still think that sellers shouldn’t bother customers or buyers unnecessarily with those details: figure ALL that stuff in beforehand and just tell them what they owe up front, without trying to make it seem as though the price is lower, even if only by implication, or through subconscious manipulation. No matter how you stack it, it’s a subtle form of deceit—chicanery, in old-timey parlance. It’s a shame that—in this instance, at least—such a cheapskate practice had to begin at the top, with such well-respected auction houses leading the “modern” trend to re-introduce yet another form of Roman “divide and conquer” tactic to be used to their own advantage, and not to ours.

  4. Buyers premium are simply a way to deceive the buyer. I know you are going to say, “It’s disclosed before you enter the auction, so how can it be deceptive?” It’s deceptive because it plays on the psyche of the buyer. It’s like pricing something at $19.99 — $19.99 sounds better than $20.00. It’s like those TV commercials selling some doodad for only $19.95 (plus shipping and handling) — but wait we will throw in a second doodad for FREE (you pay additional shipping and handling)… so the doodad you thought you were paying $19.95 for really cost you $65! It’s deceptive plain and simple. It’s a shell game and the buyer is the one being hoodwinked. Lastly, suggesting that it is necessary or acceptable because everyone else is doing it, is simply ridiculous. Didn’t we all teach our kids that it is not okay to do something just because everyone else is doing it?

  5. So if I spend $1000 at auction, and there is a 15% buyers premium, now I owe $1,150. Now if I was in the gallery bidding, I have to pay sales tax. Say that states sales tax is 5%. Now I owe $1207.50 because the buyer’s premium is taxable.
    So in recap…I bought $1000 worth of items and after the buyer’s premium and tax, I owe $1207.50

    Without the buyer’s premium, I would owe $1000 plus 5% sales tax which on $1000 would be $50, so $1050.

    $1207.50 with buyer’s premium

    $1050 without buyer’s premium

    Please explain how it works out to be the same with or without a buyer’s premium.

    Now understand…I sm a regular online bidder and eat the cost of a buyer’s premium each time. I have no choice if I want the items in the auction. But I don’t understand you’re saying it’s about the same with or without!

    It’s can’t be due to it’s an additional charge!

  6. I understand that auction houses must turn a profit, but I think that it should be the seller who foots the buyer’s premium (and any additional cost) for listing an item. After all, it’s the seller who is financially rewarded by the sale. In over 40 years of collecting, it’s been my experience that it’s understood that the seller pays for the service of listing an item, not the buyer. Look at it this way: the seller is more concerned with the sale of his/her item than the buyer; so it should be obvious who should pay the BP. For me, purchasing an item for $500 and then paying an extra $100 BP to own it isn’t going to happen…ever.

  7. Are buyers premiums tax deductible? Our gallery frequently purchases from auctions. Up until now, I’ve only deducted the price without the buyers premium as our COGS. Just curious if I’m missing an obvious deduction or not.

    1. It depends on what you are using the items for. If they are for personal use, then I would say probably not. If you are reselling the items, then they typically are tax-deductible. You just add them as the cost of the item.

      1. It looks to me that both the product and the byers premium are added together and then taxed.

        Is this the correct way to process the purchase? Would the tax and the premium be tax deductible as separate line items?

        Does it make any difference that the purchased were business expenses destined for out of stat real estate rentals?

  8. I think this is outrageous. I’ve never been charged this before at any auction I have previously participated in. Nothing personal but this is not the way to go, especially as the seller already pays fees/commission to cover said expenses. This IS another way to nickel and dime people. I won’t participate in any more auctions that add a buyers premium from here on out. It’s unjust. Thank you.

  9. I think this is outrageous. I’ve never been charged this before at any auction I have previously participated in. Nothing personal but this is not the way to go, especially as the seller already pays fees/commission to cover said expenses. This IS another way to nickel and dime people. I won’t participate in any more auctions that add a buyers premium from here on out. It’s unjust. Thank you.

  10. I can kind of understand if we are talking about a traditional auction house. I don’t agree but I understand. But for an online auction? Give me a break on these 25% premiums. When I sell on any of my multiple platforms guess who gets charged when a purchase is made? Me! So why are these online auctions any different?

  11. At an auction, especially a live auction, a buyer’s premium is a way to collect an extra fee from the buyer that he doesn’t intend to pay. If a buyer is willing to pay $123.00 for an item, and the house charges a premium or 12%, the buyer has to determine that his actual bit amount (X) must be X+.12X=123 or that his bid needs to be $109.83 with a premium of $13.1796 to pay the amount he wants to spend of $123.0096. If the house added 12% to the sellers premium, the buyer could actually spend the amount he intends. I imagine that if the house did that, the seller would balk at the price. However if the buyer still paid $123 that he was willing to pay, the result would be the same. Clearly the buyers premium is intended to confuse buyers and get them to pay more than they intend, in the heat of fast bidding. It would be fairer to charge an entrance fee at the door so buyers would know what they are paying up front. Of course if a buyer intended to spend $1000, the house would have to charge them a $120 entrance fee just to watch. “Pay no attention to that man behind the curtain.”

  12. It looks to me that both the product and the byers premium are added together and then taxed.

    Is this the correct way to process the purchase? Would the tax and the premium be tax deductible as separate line items?

    Does it make any difference that the purchased were business expenses destined for out of stat real estate rentals?

  13. Buyers premiums are wrong, the auctioneer works for the seller not the buyers. So, as the agent for the seller they should pay them not the buyers.

  14. So I’m doing a on line auction, you are collecting 40 % of everything sold, the. Collecting another 15% from everyone that buys something, there is no building to heat ,no air conditioner needed, no insurance, no taxes, etc… this is crazy. So I see it as I get 60% and you get 55% . 🤦‍♀️

  15. I was always told that I paid a buyer’s premium to enable the consigner to get a fair price for the piece (the assumption being that the consigner would not be assessed a high fee). However, I’m now forced to sell, and I’m viewing the ugly truth from the other side. The auction house wants to claim 30% from me as well as 25% from the buyer, plus charge me an additional flat fee to photograph the items, insure them, etc. In reality, if I’m unsuccessful in negotiating this percentage downward, I will realize very LITTLE from each lot. Times may be challenging for the auction houses, but they’re downright daunting for sellers!

  16. I agree with Dennis. We should not have to pay a premium for purchasing their customers product. Their customer paid to have their product in the auction, so when we, the buyer, has to pay also, it’s just more money for the auction house.
    Today I completed my last auction until the buyer premiums go away. I purchased a vehicle for $4100.00 and felt that I got a great deal. Then I saw what my total would be and now I don’t feel as though I got a great deal after all.
    I had to pay a $615.00 dollar premium and also $353.00 in taxes. Of course there were other fees associated with buying a vehicle. In all I ended up paying $5243.00 for that $4100.00 deal.
    I should have just tried to find a private seller who would take $4500.00 for their vehicle and they would be happy and I would be also. I could have saved myself $743.00 !
    No more auctions for me. I’ll go to eBay for awhile !!

  17. i just googled “buyer premium” it severly deterred me from the larger purchase i was considering. it just went from a good deal, to a bad deal.

  18. Though I hate knowing the 18% buyer’s premium I just paid as a buyer is on TOP of the fee the auction house charged the seller, if they can get it, more power to them – that’s what free enterprise is all about. Free enterprise however presumes a transparent transaction. Shielding the seller’s fee turns the otherwise good ol’ American way transaction into something oily. Please don’t pretend otherwise.

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