Should the “buyer’s premium” be shown to the seller?
Our question today involves an auction where the auctioneer/seller is charging a buyer’s premium. For example, a lot sells for US$1,000 and with a 10% buyer’s premium, the buyer of that lot pays US$1,100 (US$1,000 + 10%.)
Following the auction, of course, the auctioneer would have to settle the auction with his seller. In doing so, that settlement paperwork would show (should show) the sellers gross proceeds, any expenses and net the seller is receiving.
In the event the auctioneer keeps (retains) this buyer’s premium (US$100) — which would be somewhat typical — the specific question here is, does the seller see or know that the auctioneer made this $100? The answer to that question is: He better know about it or the auctioneer is in violation of his fiduciary duties owed his client.
We previously wrote in general about fiduciary duties here: https://mikebrandlyauctioneer.wordpress.com/2009/11/18/what-do-auctioneers-owe-their-clients/. It’s important to note that auctioneers are agents for their sellers.
First, in order for an auctioneer to charge a buyer’s premium, the seller/client must have knowledge of that buyer’s premium including the exact percentage, and give consent to it being charged. The appropriate place for such knowledge and consent is the written contract between the auctioneer and seller.
Secondly, fiduciary duty requires that clients are provided a complete accounting inclusive of all fees charged, expenses paid and income earned in regard to their auction. Therefore, on the seller’s settlement statement, it is proper for the auctioneer to disclose, for example, that the total sales price for this lot was US$1,100, auctioneer earned US$100 (buyer’s premium) and the seller’s net is US$1,000.
A common argument in regard to this disclosure of the earned buyer’s premium to the seller is: “It’s none of their (seller’s) business.” However, it is their business as the property sold was their property and their total sales price of their property included the buyer’s premium. Others have suggested this requirement varies by state — but that’s doubtful as fiduciary duties are quite common in all states.
Actually, this same theory well applies to all other income and expenses related to the auction … sales tax, transfer tax, online provider fees and the like. Said another way, “How is an auctioneer putting a seller’s property in an online platform without the seller’s knowledge and consent — and a material part of that knowledge and consent is the cost of such?” And if not, might a seller rightly ask, “Why am I not entitled to this information?” Auctioneers are encouraged to remember — they work for the seller as the seller’s agent — and not the other way around.
Lastly, what if the seller/client agreed in the contract to have no knowledge of the buyer’s premium charged or earned, and directs his auctioneer not to disclose it on any settlement paperwork? Such instructions would be considered legal directions to the agent/auctioneer, but would be deemed highly unusual. In fact, such might suggest the seller/client didn’t understand these specific instructions and could jeopardize the validity of the contract itself.
Does the “buyer’s premium” show to the seller? Absolutely, referenced in the contract, and accounted for on the settlement paperwork. In other words, “Auctioneers owe their clients a complete accounting of the auction, inclusive of the buyer’s premium charged and/or retained.”
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.