Buyer's Premiums: Learn the Truth from a Phoenix Auction House

Are you thinking about buying from a Phoenix auction house? This article is designed to provide you with the details on buyer's premiums, the unethical practice of charging them and how to be an informed buyer. Specifics may vary from auction to auction; however, the following information includes helpful and important guidelines from which everyone can benefit.

Buyer's premiums are increasing in popularity and yet, have created significant industry controversy. Some of this controversy has now spilled over into the auction press. In the May 2001 issue of the Auctioneer (the official monthly publication of the National Auctioneers Association), John H. Miles discusses the positive aspects of charging buyer's premiums in an article entitled "Buyer's Premium: To Charge or Not To Charge?" However, Mr. Miles praise of buyer's premiums is rather faint and his rationalizations for using buyer's premiums somewhat disquieting.

Mr. Miles' compares the use of buyer's premiums to the illegal marketing tactic of using false markups and markdowns to create the impression of a sale price. He chooses words that carry an implied perception of deceitful behavior ("buyer's sometimes fall for that type of gimmick.") Do we really want to promote an industry practice that requires customers to fall for a "gimmick"? Mr. Miles also admits that the introduction of buyer's premiums into relationships between auctioneers and sellers can be deceptive ("Sellers will be approached with all types of buyer's premium liquidation proposals that may sound good on the surface").

Mr. Miles' article attempts to analyze the impact of buyer's premiums on total auction revenue but does not do so in a balanced way. He focuses solely on the impacts of charging buyer's premiums of 10% or under while buyer's premiums of greater than 10% are dismissed as "typically not recommended". Buyer's premiums of over 10% actually decrease auction revenue and result in 100%, or even 100+%, of the buyer's premium coming out of the seller's final proceeds. The auctioneer who charges 3% straight commission and 15% buyer's premium may actually be charging the seller the equivalent of 20% straight commission!!

As a counter point to John Miles' previous article in favor of buyer's premiums, I would like to discuss the negatives of buyer's premiums.

Buyer's Premiums Create Intense Buyer Dissatisfaction. I have never heard a single buyer say anything positive about buyer's premiums. Bidders may become resigned, or even accustomed to paying a buyer's premium, but they don't like the premium. Buyer's feelings about buyer's premiums range from simple annoyance at having to constantly subtract the premium from their bid amounts; to rage at having been tricked into paying too much by the use of a "gimmick". In Arizona (my home state), where many Phoenix auction houses do not charge buyer's premiums, bidders will often choose between two auctions on the basis of which auction does not charge a buyer's premium.

If a consultant came to you with a proposal to increase your business revenue by charging your customers an additional 10% that would net you 3% in increased revenue but at the cost of dramatically increased customer dissatisfaction, would you even seriously consider the proposal? High levels of customer dissatisfaction seem a terrible price to pay for an additional 3% profit. Many auctioneers who are adamantly opposed to auctioneers bidding at their own auctions, because of the customer dissatisfaction it creates, don't give a second thought to charging buyer's premiums, which create at least an equal amount of customer dissatisfaction.

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