What Is a Buyer's Premium? How Auction Fees Add Up

How is a buyer's premium calculated?

The premium is a percentage of the hammer price, the winning bid when the lot closes. Multiply the hammer by the rate and add it on. In most Texas sales, sales tax is then figured on the hammer plus the premium.

A few examples at different prices show how quickly it adds up:

• $40 hammer at a 10% premium: $4 premium, $44 before tax.
• $100 hammer at a 15% premium with 8.25% tax: $15 premium, $115 subtotal, $9.49 tax, $124.49 total.
• $1,000 hammer at an 18% premium with 8.25% tax: $180 premium, $1,180 subtotal, $97.35 tax, $1,277.35 total.
• Some sales use a flat fee per lot or a tiered rate that drops on expensive lots. The terms spell out which.

Why do auction houses charge a buyer's premium?

Auction houses earn money from both sides. The seller, called the consignor, usually pays a commission, and the buyer pays the premium. Together they cover photography, cataloging, online listing costs, staff for pickup days, card processing and the building itself.

For bidders, the premium is just part of the price. A lot that hammers at $200 with a 20% premium costs the same as a lot that hammers at $240 with no premium. What matters is the total, not which line it lands on.

How much is a typical buyer's premium?

Rates vary by house, sale and type of item. Many regional sales charge somewhere between 10% and 20%, some charge more, and a few charge nothing and build their costs into the seller's side. Some houses also charge a few points more for online bids than for bids placed in the room.

Read the rate before you bid, every sale, every time. Two sales from the same house can carry different premiums, and a five-point difference on a $2,000 lot is $100.

Small percentages add up across a whole sale. Win ten lots totaling $1,200 in hammer at an 18% premium, and the premium alone is $216, before a cent of sales tax. Budget for it on every lot, not just the big ones.

Is the buyer's premium taxable in Texas?

In general, Texas treats the buyer's premium as part of the sales price, so sales tax applies to the hammer plus the premium. Texas sales tax is 6.25% state plus up to 2% local, so up to 8.25%, which is the Houston rate.

If you buy for resale and give the house a valid resale certificate, tax may not apply. That is the general rule, not tax advice; check with the Texas Comptroller or an accountant, and see Texas auction sales tax for more.

How do you bid with the buyer's premium in mind?

Divide your all-in budget by the multiplier. With a 15% premium and 8.25% tax, the multiplier is 1.15 times 1.0825, or about 1.245. If the most you will spend on a dining table is $500, your highest hammer bid is about $401, so a $400 max keeps the total at $497.95.

On Auktia you can skip the math. The all-in price shows the current bid, buyer's fee (buyer's premium), tax and shipping on the page for each item (lot) as the bidding moves, and the All-in pricing switch in the header shows every price that way.

What other auction fees can show up on an invoice?

The premium is the big one, but it is not always the only line. Read the terms for any of these before you bid, because each one changes your real price.

• Lot or handling fees: a flat charge per lot won, common on small items.
• Online bidding surcharges: a higher premium for bids placed online than in the room.
• Card fees or cash discounts: some houses charge more for card payments or take a little off for cash.
• Loading or packing fees: a charge for forklift help, crating or packing a lot to ship.
• Storage fees: daily charges for lots left past the pickup deadline.