Buyer's premium

In auctions, the buyer's premium is a percentage additional charge on the hammer price (winning bid at auction) of the lot that must be paid by the winner. It is charged by the auctioneer to cover administrative expenses. The buyer's premium typically goes directly to the auction house and not to the seller.

Major auction houses have made this charge for some time, particularly in the fine arts sector, with premiums in the region of 10%-25%. In the real estate sector in many European countries, the premium, if charged at all, is much less (2%-2.5%). However, more recently, in the UK foreclosure properties have been offered without fee to the seller, but with a substantial buyer's premium of 10%.

The buyer's premium is considered to be either a necessary contribution to the costs of the administrative process or an unreasonable extra charge by the auction community. Auction houses may now market themselves as "not charging a premium" to gain favor with customers. Regardless, such premiums are now commonplace and continue to grow.

The amount of the buyer's premium will normally be stated in the auction house terms and conditions or, in the case of UK properties, it would be listed in the RICS (Royal Institute of Chartered Surveyors) Common Auction Conditions or in the special conditions for the lot.

In Europe, the buyer's premium will also be subject to VAT (value added tax), while in the United States, some states require the premium to be included in the sales tax base.

The buyer's premium was a feature in Roman auctions during the reign of Augustus, when buyers were required to pay a two percent tax on purchases. The modern buyer's premium was introduced at 10% by Christie's and Sotheby's in London in September 1975.

Fees varied widely. Christie's charged 14% in the Netherlands and Belgium. Sotheby's charged 16% in Switzerland (10% to foreigners), 11% in Monaco and 16% in the Netherlands. There was no fee at Christie's sales in Australia and Sotheby Parke Bernet auctions in South Africa. Christie's also charged no fees to buyers at its South Kensington house in London and at Edmiston in Glasgow. Christie's introduced a 10% fee to buyers in the United States when it opened at Park Avenue and 59th Street in May 1977. Sotheby's followed in January 1979.

Beginning on 1 January 1993, Sotheby's charged buyers 15% on goods sold for $100,000 or less. Amounts above that were charged at 10%. Christie's introduced the same price regime on 1 March 1993.

...
Wikipedia