The buyer's premium is one of the most misunderstood elements of real estate auctions. Here's a plain-language explanation and a practical framework for bidders.
If you've registered for a real estate auction and seen a reference to a buyer's premium, you may have wondered: what exactly is this, and how does it affect what I'll pay?
The Simple Explanation
A buyer's premium is a percentage added to the winning bid to determine the total purchase price. It is disclosed in the Terms and Conditions before the auction, so there are never any surprises. Example: 10% buyer's premium on a $500,000 bid results in a $550,000 total purchase price.
How to Factor It Into Your Bidding
Think in terms of total acquisition cost, not bid price. Before the auction, determine the maximum total price you are willing to pay. Then work backward to find your maximum bid. Do this math before bidding begins, not in the heat of competition.
Does It Affect the Seller?
No. The seller receives the hammer price only. The buyer's premium is paid by the buyer on top of that amount. The seller's net is based on the winning bid alone.