What is the point of the "Buyer's Premium"?

[Fballguy]

Originally Posted by x2drich2000

Auction houses absolutely produce a product. The auction house's product is the service they provide. If the auction house is simply a venue, then you would be doing all the work. Even if they are just a venue, like ebay, than the product they provide is the place for you to sell.

Service is not a product. And what's the difference in service from Hunt to Heritage to Huggins to REA to LOTG to Lelands to etc to etc to etc?

[Casey2296]

Originally Posted by Fballguy

Service is not a product. And what's the difference in service from Hunt to Heritage to Huggins to REA to LOTG to Lelands to etc to etc to etc?

Service might not be a product like McDonalds French fries but it is tangible and valuable. The difference between auction houses is the same difference between the service you get at a greasy spoon vs fine dining. And I love greasy spoons but there is a marked difference.

[Orioles1954]

I guess the 40-60 hours/week my team researches, writes and edits descriptions is not a product. It’s all just created in a vacuum!

[RCMcKenzie]

This topic comes up a lot, and Peter pops-up and explains it, and the thread goes on for 200 replies.

It's pretty simple. Card "A" has a book value of $80. It's not a rare card. I sell a Card "A" on ebay and it sells for $80. I get $65. I sell with an auction...bidders go only to $65 b/c that means they pay $80 and I get $65.

Yes, I can ask $80 as a bin on here or at a show or facebook or whatever, and people will counter offer $65. I sell for $65.

[BobC]

Originally Posted by Fballguy

Service is not a product. And what's the difference in service from Hunt to Heritage to Huggins to REA to LOTG to Lelands to etc to etc to etc?

Are you really serious???

Have you ever in your life owned or operated an actual business to really see and understand how ALL businesses, whether they produce an actual product, or just provide services, have any number of differing and varying costs involved? AHs can have different numbers of employees, in different numbers of locations and offices, in different states with different levels of taxes, and owners with different needs/wants as far as how much they need to make. They can provide different levels of advertising with significantly different costs, and even the size and volume of lots, and how frequently they hold auctions, can dramatically effect how much they need to charge as commissions and fees to stay in business.

Every single business, including AHs, have what are known as fixed costs, that they know they have to pay whether they hold one single auction, or sell one single item, or not. And those fixed costs are going to vary from business to business, and AH to AH. And then there are the variable costs that are incurred, based on what they have to spend to actually run an auction and sell items. And those obviously are going to vary from one AH to another. So, thinking and ever suggesting that all AHs should somehow be charging the exact same commissions and fees as every other one is absurd and ludicrous.

And go back to what I posted in post #88 of this thread and read my scenarios of what can happen if one AH splits their fees of say 15% and 25% between a seller's commission and a buyer's premium, while another AH that say only charges a seller's commission of 29%, sells the exact same item for the same gross amount. Even though both AHs are charging different commission/fee percentages, in my scenarios both AHs end up with basically the exact same profit. So just because the commission/fee percentages between AHs aren't exactly the same doesn't necessarily mean one AH is making more or less money than another anyway.

This thread should have never gotten into a double digit numbers of posts. The OPs question was pretty quickly answered. The way various people are misinterpreting and going in weird directions with this is ridiculous. Here are the cosmic truths surrounding this entire issue.

AHs have to charge someone, sellers and/or buyers, commissions/fees so they can make money they need to stay in business.

AHs have all different and varying costs and needs as to how much they have to make, which can affect the commission and fee percentages they end up having to charge, to stay in business.

AHs need consignments so they have items to auction and sell to make money to stay in business.

AHs will often charge bidders Buyer's Premiums, so they can lower prospective Seller's Commissions so more people will consign items to them as opposed to other AHs, so they can stay in business.

AHs do not charge Buyer's Premiums to be deceptive to bidders. They generally do however not add the BP onto the bids during an auction so people bidding can see exactly what they'll end up paying, until after the auction ends. Because some bidders may/do forget and end up bidding more than they may have otherwise had they seen the BP added onto their bids during an auction. And virtually all the AHs do this as a marketing technique, trick, whatever you want to call it, so they can hopefully make more money for their consignor/customers, and also make a little more money for themselves, to then still stay in business.

AHs have to stay competitive and pretty much do what all the other AHs are also doing, to stay in business.

[doug.goodman]

Wow, this is a dumb thread.

[Fballguy]

Originally Posted by BobC

Are you really serious???

Have you ever in your life owned or operated an actual business to really see and understand how ALL businesses, whether they produce an actual product, or just provide services, have any number of differing and varying costs involved? AHs can have different numbers of employees, in different numbers of locations and offices, in different states with different levels of taxes, and owners with different needs/wants as far as how much they need to make. They can provide different levels of advertising with significantly different costs, and even the size and volume of lots, and how frequently they hold auctions, can dramatically effect how much they need to charge as commissions and fees to stay in business.

Every single business, including AHs, have what are known as fixed costs, that they know they have to pay whether they hold one single auction, or sell one single item, or not. And those fixed costs are going to vary from business to business, and AH to AH. And then there are the variable costs that are incurred, based on what they have to spend to actually run an auction and sell items. And those obviously are going to vary from one AH to another. So, thinking and ever suggesting that all AHs should somehow be charging the exact same commissions and fees as every other one is absurd and ludicrous.

And go back to what I posted in post #88 of this thread and read my scenarios of what can happen if one AH splits their fees of say 15% and 25% between a seller's commission and a buyer's premium, while another AH that say only charges a seller's commission of 29%, sells the exact same item for the same gross amount. Even though both AHs are charging different commission/fee percentages, in my scenarios both AHs end up with basically the exact same profit. So just because the commission/fee percentages between AHs aren't exactly the same doesn't necessarily mean one AH is making more or less money than another anyway.

This thread should have never gotten into a double digit numbers of posts. The OPs question was pretty quickly answered. The way various people are misinterpreting and going in weird directions with this is ridiculous. Here are the cosmic truths surrounding this entire issue.

AHs have to charge someone, sellers and/or buyers, commissions/fees so they can make money they need to stay in business.

AHs have all different and varying costs and needs as to how much they have to make, which can affect the commission and fee percentages they end up having to charge, to stay in business.

AHs need consignments so they have items to auction and sell to make money to stay in business.

AHs will often charge bidders Buyer's Premiums, so they can lower prospective Seller's Commissions so more people will consign items to them as opposed to other AHs, so they can stay in business.

AHs do not charge Buyer's Premiums to be deceptive to bidders. They generally do however not add the BP onto the bids during an auction so people bidding can see exactly what they'll end up paying, until after the auction ends. Because some bidders may/do forget and end up bidding more than they may have otherwise had they seen the BP added onto their bids during an auction. And virtually all the AHs do this as a marketing technique, trick, whatever you want to call it, so they can hopefully make more money for their consignor/customers, and also make a little more money for themselves, to then still stay in business.

AHs have to stay competitive and pretty much do what all the other AHs are also doing, to stay in business.

If anyone is looking for the Cliff's Notes of this 160 post thread, Bob was kind enough to provide.

Unfortunately though Bob, the Buyers Premium is charged to the buyer and I still don't know how the service to the buyer is different at 17.5% auction house than it is at a 23% auction house.

[robertsmithnocure]

I do not understand all of the confusion.

Both buyers and sellers should be looking at the hammer price plus the buyer’s premium, which is the final realized price.

The buyer obviously has to pay that price, plus possible shipping and sales tax.

The seller will end up getting a percentage of that final realized price depending on the the deal that he has negotiated with the auction house, namely if he is paying a seller’s fee and whether he is getting any of the buyer’s premium.

[jayshum]

Originally Posted by Fballguy

If anyone is looking for the Cliff's Notes of this 160 post thread, Bob was kind enough to provide.

Unfortunately though Bob, the Buyers Premium is charged to the buyer and I still don't know how the service to the buyer is different at 17.5% auction house than it is at a 23% auction house.

I think you missed Bob's point. If one AH has higher costs than another, they're going to have to charge a higher BP to cover them even if service is exactly the same. A plumber in NYC is going to have to charge more than a plumber somewhere with a lower cost of living even if they are doing the exact same job with the same level of quality.

[BobC]

Originally Posted by jayshum

I think you missed Bob's point. If one AH has higher costs than another, they're going to have to charge a higher BP to cover them even if service is exactly the same. A plumber in NYC is going to have to charge more than a plumber somewhere with a lower cost of living even if they are doing the exact same job with the same level of quality.

Thank you Jay!

I'm biased having been an accountant/CPA since the 70's, and to me, understanding that businesses are all going to have different costs and needs as far as what they have to charge and make to stay in business is like breathing. It is essential, and you don't even think about it.

The fact that even when we try spelling it out for others, and they still don't get it, just has me shaking my head. Oh well, all we can do is try, right?

[raulus]

Originally Posted by jayshum

I think you missed Bob's point. If one AH has higher costs than another, they're going to have to charge a higher BP to cover them even if service is exactly the same. A plumber in NYC is going to have to charge more than a plumber somewhere with a lower cost of living even if they are doing the exact same job with the same level of quality.

I’ll take it one step further. Costs aren’t necessarily the only factor. Target profit margins are another. Even if the costs are the same, if one business aims to be more profitable, then charging more is going to be the way to get there. Assuming that people will pay your higher prices, of course!

[BobC]

Originally Posted by raulus

I’ll take it one step further. Costs aren’t necessarily the only factor. Target profit margins are another. Even if the costs are the same, if one business aims to be more profitable, then charging more is going to be the way to get there. Assuming that people will pay your higher prices, of course!

Exactly right, and exactly what was meant when I also said different AH owners have different wants/needs as far as how much they need to make in their businesses.

A business being able to provide comparable level products or services as good as their competitors is only one facet of being able to operate a successful business. They also have to be able to provide that product or service at what is deemed and perceived by the public as at a competitive cost or fee, or they aren't going to be in business very long no matter how good their product or services actually are.