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 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%.^[1] 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.^[2] Auction houses may now market themselves as "not charging a premium" to gain favor with customers.^[3] 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.

History

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.^[4] The modern buyer's premium was introduced at 10% by Christie's and Sotheby's in London in September 1975.^[5]

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.^[5]

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%.^[6] Christie's introduced the same price regime on 1 March 1993.^[7]

On 24 January 2003, Christie's raised commissions charged to buyers in New York, London and Geneva to 12% on amounts above $100,000, effective 1 March 2003. The premium charged to buyers on the first $100,000 was held at 19.5 percent. Sotheby's had raised its premium for sales above $100,000 to 12% two weeks earlier, and increased its commission on the first $100,000 to 20% from 19.5%.^[8] In London that meant 20% on the first £70,000 and 12% on any amount above that.^[9]

Christie's announced on 15 February 2013 that it would raise buyer's premium effective 11 March 2013. The new premiums were 25% for the first $75,000; 20% on the next $75,001 to $1.5 million and 12% on the rest.^[10] Sotheby's followed suit on 28 February,^[11] announcing raised premiums effective 15 March 2013.^[12] Buyers in London, New York and France are charged 25% on the first $100,000 (£50,000; €30,000); 20% from $100,000 up to and including $2 million (£50,000 to £1,000,000; €30,000 to €1,200,000) and 12% on the remainder.^[11][12]

Christie's later announced an amendment to their premium increase effective 30 September 2013. This amendment applied 25% premium up to $100,000; 20% to the amount $100,001 to $2,000,000 and 12.0% to the remainder.^[13]

References