Learn How to Avoid Buyer's Premiums in Arizona Auctions

Are you thinking about buying your next car or television at an Arizona auction? This article will provide you with info that will help you learn about what buyer's premiums are and how they affect your final bid in a winning auction. Specifics may vary from auction to auction; however, the following information includes helpful and important guidelines from which everyone can benefit.

Buyer's Premiums Make it Difficult to Compare Competitive Bids. When multiple auctioneers submit competitive bids for the same Arizona auction, the seller must evaluate the bids to decide which auctioneer is the low bidder. This is not a simple task when comparing bids that also include the buyer's premium. Let's look a hypothetical example:

Say there are three auctioneers involved. Auctioneer One takes a straight 10% commission. Auctioneer Two takes a 7% straight commission, plus a 10% declared buyer's premium. Auctioneer Three takes a 5% straight commission, plus a 15% undeclared buyer's premium.

Most auctioneers would say that Auctioneer One has submitted the lowest bid, but who will actually be awarded the contract? Unfortunately, it is most likely the highest bidder, Auctioneer Three, who will win the contract. What recourse does Auctioneer One have when the contract is awarded to an auctioneer who submitted a dramatically higher true bid?

Auctioneer One could contest the award and declare that Auctioneer Three is intending to charge an undisclosed buyer's premium. But how do you prove intent when Auctioneer Three would just deny it? If Auctioneer Two wins the bid, Auctioneer One could contest the award and try to explain that the contract was incorrectly awarded due to the complexities of buyer's premiums. The contracting officer will surely perceive this as reflecting negatively on his/her competency and vigorously fight the effort.

Auctioneer One could sue the awarding agency for awarding the contact in error and garner the undying hatred of the seller. The only alternative is for Auctioneer One to attempt to educate the seller about the negative impact of buyer's premiums so the outcome is different the next time the contract is awarded (unfortunately, probably years later). Ironically enough, Auctioneer Two will vigorously defend buyer's premiums even though buyer's premiums are what caused them to lose the contract to a much higher bidding auctioneer.

The award of the contract to the incorrect bidder, and all of the attendant negative consequences to both the seller and buyers, could be eliminated by forcing all of the bids to be made on straight commission (an increasing practice in government bids). I know auctioneers who have dropped out of bidding on government contracts because they were constantly losing to higher bidding auctioneers whose bids included declared and undeclared buyer's premiums.

For the individual Arizona auctioneer, the biggest negative of buyer's premiums is that it puts a powerful tool into the hands of unethical auctioneers, who are capable of destroying ethical auctioneers. For the entire auction industry, the negative impacts of buyer's premiums are even more disturbing. As an industry, we are intentionally creating a highly negative experience for our buyers, adding an element of deception to our seller relationships, and introducing complexity to the competitive bidding process that results in contracts being awarded to the incorrect bidder. As an industry, are these trends we want to encourage? Maybe not, but many auctioneers who are resisting charging buyer's premiums will admit, once even a small percentage of ethical auctioneers begin using buyer's premiums, all auctioneers will have to follow suit or go out of business. By charging buyer's premiums, are we all stepping onto this slippery slope fully understanding the long-term effects on our industry?

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