Monday, May 4, 2015

Buyer's Premium - Do you charge one?

I often get asked about the use of a buyer's premium for an online auction.  How much should I charge or, should I charge one at all?

Before I share my thoughts, here is a little background on buyer premiums.

From Wikipedia...In auctions, the buyer's premium is a percentage additional charge on the winning bid at auction that must be paid by the winner.

In the auction industry, the buyer's premium came about because the auctioneer needed a way to collect a marketing fee upfront to cover the cost of advertising and running an auction as well as a way to get paid for their services.  So, instead of tacking on an additional "commission" to be paid by the seller, it was determined that sellers were more receptive to having the buyer pay for the auctioneer services by adding a buyer premium to their purchase.

So, should you charge a buyer premium on your online real estate auctions?

It depends.

In general, I feel that if you have a good way to get paid for your services without charging one, an auction will always be more appealing to a bidder when there is not one.

However, I also realize there are many cases when using a buyer premium is the best way for the auctioneer to get paid.  There are also areas in the country where a buyers premium is expected.

As an example, I'm a licensed real estate broker in my area (St. Louis, MO).  I collect a $250 marketing fee upfront and then charge the seller a 6% commission.  I do this because sellers are conditioned to paying a realtor commission and many buyers in my area are not familiar with a buyer premium.

So, it really comes down to your area, your business model and what works best for you.

Until next month.

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