• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Buyers Premium paid at Auction, what to do with it?

Status
Not open for further replies.

Ray Miller

Thread Starter
Elite Member
Joined
Feb 20, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
Buyers Premium

Subject sells at auction $190K that is the high bid. But there is in the auction industry what is called “Buyers Premium”. In this case which appears to be the standard the “Buyers Premium” is 10%. This is the fee charge the buyer added to the high bid. The 10% fee goes to the Auctioneer. There is no selling commission charged to the seller. Depending on the auction contract the seller may pay other expenses out of the sales price like, marketing and advertising, auction clerking expense, ring crew, if a building is rented to hold the auction in away from the property. These expenses may also be paid out of the 10% buyers’ premium again depending on the auction contract.

So what do you consider the actual selling price of the subject property at auction.

Do you add the “Buyers Premium” to the high bid?

Do you subtract the seller Auction expense if not taken out of the “Buyer Premium”

Or do you just accept the high bid as the selling price?

In this case $190,000 + $19,000 = $209,000 to the buyer + standard closing cost.

Homeowner contract call for pay for advertising and marketing only. Lets say that cost $5000. So net to the seller was $5,000.

How would you consider this in your work file and appraisals?

---------------------

In some cases the seller pays the 10% commission to the Auctioneer and all other expenses?

How would you consider this in your report?

For the subject and the comparables?
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
It seems to me that the buyer was willing to pay $209,000. Apparently no one else was. I wouldn't use it as a "comp" and if it was the subject it wouldn't really matter. I would analyze the sale and terms and see where it fit value-wise into the market for similar properties. I might report the sale and analysis as a CYA in case it shows up on a reviewers radar.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
It seems to me that the buyer was willing to pay $209,000. Apparently no one else was. I wouldn't use it as a "comp" and if it was the subject it wouldn't really matter. I would analyze the sale and terms and see where it fit value-wise into the market for similar properties. I might report the sale and analysis as a CYA in case it shows up on a reviewers radar.

I agree with Greg. I have come across many sales in the past where the buyer paid the commission. If you can document the $19,000 fee, I see no reason why it should not be considered or even if used as a comp.
 

Charles Witt

Senior Member
Joined
Dec 13, 2002
Professional Status
Certified Residential Appraiser
State
Delaware
I would use the figure displayed in the deed!
 

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
I would hesitate to use an auction sale as a comp due to marketing/exposure time considerations as they relate to arms length market value. If I did use it, I would take those factors into consideration. Bluntly, auction sales are not "good" comparables, like REOs etc until that becomes the market. MPOV
 

Alison Swain

Senior Member
Joined
Sep 13, 2005
Professional Status
Certified Residential Appraiser
State
Florida
10%? Wow, that's impressive. Last week they held a big RE auction at the convention center. The high bid premium was 5%.
 

Ray Miller

Thread Starter
Elite Member
Joined
Feb 20, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
10%? Wow, that's impressive. Last week they held a big RE auction at the convention center. The high bid premium was 5%.


figure if you have got a bunch of properties to sell at auction, you have a large number of bidders under one roof, the cost of doing business will be less then on a single property.

Say they had $25M to sell @ 5% that would be a commission to the Auction Company of $125,000 not bad for a days work. Just to rattle your jaws for a bit.
 

JSmith43

Elite Member
Joined
May 5, 2003
Professional Status
Certified General Appraiser
State
California
I agree with REX.
 

Michael Tipton

Senior Member
Joined
Sep 25, 2005
Professional Status
Certified Residential Appraiser
State
Florida
Auction fee vrs. Realtor commission rate? We don't back out Realtor commissions.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I would argue that an auction sale is not an arms-length transaction that meets the definition. You've got the "auction mentality" that hits. Watch the Barrett-Jackson auto auction and you can see how it really impacts value.

If you really wanted to use it, use it as a 4th or 5th comp. Not a primary comp.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks