What to do when the auction fee is added to the negotiated sales price?

[Metamorphic]

Looking at it from a theoretical stand point the sales price used in the appraisal should be that price that is most clearly equivalent to the other prices used in the appraisal. "Apples to Apples" if you will. The buyer's premium is a reasonable analogue to the agents commission and so should be included to turn the orange auction sale into something like an apple.

 

[aussie ken]

Maybe I am dense this morning but why was it auctioned when it sold through MLS after 165 days on the market?

Like Mike I'm a little slow except its late afternoon here........Moh, did this property sell by way of open market auction after 165 days on the agents books?Was a price of $415,000 achieved under the hammer in front of other interested buyers?

 

[RSW]

The 5% is called a buyer's premium. The participants at the auction are made aware of the buyer's premium before the auction begins. Therefore, they know if you bid $415,000 there will be an additional $21,000 added onto it. $436,000 is the sale price.

 

[jay trotta]

sounds very similar to the BUilder who offers a car with the Sale-the cost has already been added into the Price, therefore, whatever it Sells for doesn't warrant an adjustment.

18 birds wit one stone....luv flyin like this

 

[aussie ken]

From 10,000 miles away having bought at auctions where buyers premium is used I always thought what I paid was the the auction price under the hammer to the owner which is the sale price. The buyers premium was an annoyance to pay to someone else............. The buyers premium is a second but distinctly separate legal agreement to pay the auctioneer a set commission rate ontop of what I am paying to the owner. This is related to the sale price but is not part of the overall sale price.......... As an example of the earlier argument to include the Buyers premium as part of the sale price you therefore must also add all the other sundary costs associated with a buyer purchasing the property..........state and federal taxes..........lawyers etc etc to maintain consistancy of the argument........In simple terms the sale price is $415,000 under the hammer to the owner under auction conditions .........and the buyer then pay's a fee to the auctioneer who is a separate party........... No differant than fees paid to a lawyer, surveyor etc. ..........SOLD for $415,000 to the gentlemen in the front row........is what the people heard at the auction and its the price.

 

[Ray Miller]

Ken,

Good points, never looked at it that way, have never been taught that way. All have sald to add the "Buyers Premium" to the hammer value.

I will need now to research this new direction and see where it leads.

I will also post it over at our NAA web site as well.

 

[RSW]

From 10,000 miles away having bought at auctions where buyers premium is used I always thought what I paid was the the auction price under the hammer to the owner which is the sale price. The buyers premium was an annoyance to pay to someone else............. The buyers premium is a second but distinctly separate legal agreement to pay the auctioneer a set commission rate ontop of what I am paying to the owner. This is related to the sale price but is not part of the overall sale price.......... As an example of the earlier argument to include the Buyers premium as part of the sale price you therefore must also add all the other sundary costs associated with a buyer purchasing the property..........state and federal taxes..........lawyers etc etc to maintain consistancy of the argument........In simple terms the sale price is $415,000 under the hammer to the owner under auction conditions .........and the buyer then pay's a fee to the auctioneer who is a separate party........... No differant than fees paid to a lawyer, surveyor etc. ..........SOLD for $415,000 to the gentlemen in the front row........is what the people heard at the auction and its the price.

That would be like saying the Realtor fee is not part of the sales price of a home. The buyer at an auction is well aware there will be a buyer's premium before he/she starts bidding.

 

[jay trotta]

Excellent post Ken and by the way how are things in the wonderful world of Australia ?

was there back in the 60's, I'm sure it's changed quite a bit; visited Perth / Melbourne and Sydney, compliments of Uncle Sam I yam - 7 days in each port, great people there.

 

[Metamorphic]

So, do you define the sales price of a comparable as the net proceeds to the seller or the total outlay by the buyer to acquire the property, or perhaps somewhere in between as is typical where buyers and sellers share closing costs.

The "Sales or Financing Concessions" lines are where you're supposed to acknowledge differences in the financial aspects of the transaction that would prevent the even basis comparison of the prices.

So, is it fair to say that its not whether or not the buyers premium is part of the sales price, but that you consider it in relation to the other comparables and handle it in a clear and open fashion as appropriate to make the least misleading possible comparison to the subject and the other comps.

 

[RSW]

So, do you define the sales price of a comparable as the net proceeds to the seller or the total outlay by the buyer to acquire the property, or perhaps somewhere in between as is typical where buyers and sellers share closing costs.

The "Sales or Financing Concessions" lines are where you're supposed to acknowledge differences in the financial aspects of the transaction that would prevent the even basis comparison of the prices.

So, is it fair to say that its not whether or not the buyers premium is part of the sales price, but that you consider it in relation to the other comparables and handle it in a clear and open fashion as appropriate to make the least misleading possible comparison to the subject and the other comps.

Good point! If what Ken Jackson said, we would have to deduct every commission fee paid to an agent to all of our comps. m2: