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Writer's pictureMike Brandly, Auctioneer

Buyer’s Premiums & Agency Duty

The suggestion apparently is that the buyer’s premium belongs to the auctioneer no matter. This is absolutely not true. The buyer’s premium is part of the purchase price the buyer pays for the subject property, and thus by default belongs to the seller unless specifically denoted in the contract that it is to be paid to (or retained by) the auctioneer.

It is this simple for auctioneers — if you want to charge and be paid (or retain) the buyer’s premium, give your client knowledge of such arrangement, secure your client’s consent of such arrangement, and then charge and keep (or retain) the buyer’s premium — all memorialized in the contract between you and your client.

I am a fierce advocate of free speech, which isn’t guaranteed except by Congress (and by extension the federal government) that shall make no law prohibiting freedom of speech … thus allowing the private sector to regulate/prohibit ill-advised speech otherwise … but this nonsense remains.

Maybe this declaration of sorts was made to prompt discussion? Maybe it was made to encourage thought? We ask, “What would be wrong about denoting in the contract that a buyer’s premium would be assessed (all charges in an agency relationship) and where the buyer’s premium is to be ultimately paid (all profits in an agency relationship?”)

The troubling practice we’re privy to is both charging and retaining a buyer’s premium, both without the client’s knowledge and consent. This is alarming behavior by any auctioneer and as such appropriate damages would be due the client for such concealment. We have written about “secret profits” including here: https://mikebrandlyauctioneer.wordpress.com/2022/01/22/auctioneers-and-secret-profits/.

An auctioneer’s contract with his seller/owner/consignee should detail every fee charged and every profit earned in that agency relationship, with no exceptions. This shouldn’t be difficult nor is it, unless you’re seeing or hearing other thoughts which might suggest otherwise. Recent court cases we’ve seen would suggest our advice found here is sound.

Buyer’s premiums were first used in the United States in 1977, and they are here to stay. Buyers are becoming more accustomed to paying buyers’ premiums, especially online. As such, more and more auctioneers are charging buyers’ premiums, and it’s paramount that such is completely detailed in the auctioneer’s contract with his or her client.

We recently wrote (again) about higher and higher buyer’s premiums and the misconceptions concerning additional profit to the seller and auctioneer. https://mikebrandlyauctioneer.wordpress.com/2022/02/25/buyers-paying-more-and-more-of-the-costs/. As we noted, we expect rates to moderate in the coming years.

For the skeptics out there, let’s explain further: By the auctioneer saying, “Sold!” he puts the buyer and seller into contract. The consideration in this contract is the total purchase price (hammer price + buyer’s premium) and the subject property. The auctioneer is not a party to this contract and is due no consideration just yet. Once the transaction “closes” the seller pays the auctioneer (or the auctioneer retains) his due commission per the contract.

Steve Proffitt wrote in 2009 the following (in part, consistent with all his other writings, emphasis added)

the buyer’s premium proceeds belong exclusively to the seller of the property that generated the proceeds. These sales are made by an auctioneer engaged to serve as the seller’s agent. The auctioneer owes the seller all the duties an agent owes a principal, including a strict fiduciary duty and its requirement of a full accounting. Steve Proffitt, November 9, 2009

I would argue a “full accounting” to the principal would include noting the exact buyer’s premium in the contract along with a complete explanation of how it will be disbursed. I suggest every auctioneer note this fiduciary duty as, without strict adherence, it would seem clear that the auctioneer would be in violation.

Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.

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