Smoke and Mirrors Marketing

No Commission ??
The seller will pay no commission to the Auctioneer, the buyer will pay our commission through a buyers premium.  Read carefully, and see if you can find who really pays the auctioneer.

The use of the buyers premium (BP) by auctioneers has been in practice since the 1960s. It’s charged by the auctioneer and when used, the seller pays no sales commission, ya right !

The reason I subtitled this entry, “smoke and mirrors marketing” is due in part to the way in which most auctioneers explain or “pitch” the BP to prospective sellers.  Most, incorrectly, pitch the BP to sellers as a way to sell their property without paying the auctioneer a sales commission.  The second incorrect statement made by most auctioneers, is the auctioneer charges the BP. The pitch usually goes something like this;

“If you use, “Dewy, Scheatem & Howe, Your City’s oldest and most experienced, auction company, we will only charge you (Mrs. Seller) a marketing fee to guarantee a professional marketing campaign (where a good percentage of those marketing dollars will go to promote our auction company and a small percentage to market your property) and our sales commission with be paid by the buyer in the form of the BP no sales commission will be charged to you”. Sounds great, the only problem, it’s not true, at least 99% of the time it’s not.  I’ll explain the 1%, later.  The auctioneer does not charge the BP, nor does the buyer pay the auctioneers commission.  How can this be?  How do most auctioneers get away with deceiving the public into believing that the seller pays no sales commission and the auctioneer is the one charging the BP?  This is where the smoke and mirrors comes into play.  By the way this is not a term I applied to the BP but that of an auctioneer who uses the BP in his auction practice. The mirrors part of the equation is the fact that perception IS reality to the majority of the public.  If I perceive that the auctioneer charges the BP and I will not be charged a sales commission, then in fact it must be the truth because I believe it to be so.

OK, let us look at point one of my assertion, auctioneers don’t charge the BP, sellers do.  We are agents for whom?  Most auctioneers work as an exclusive agent for the seller and the seller only (sorry for the redundancy).  Therefore, who is charging the buyers fee?  Not I, my contract only empowers me to charge one person, the seller. As an agent for the seller I am executing her wishes listed in the terms and conditions of her auction sale and the terms indicate there will be a BP collected from the high bidder.  I rest my case, the seller charges the buyers premium NOT the auctioneer. Even if your contract states that the buyer will pay your commission in the form of a BP.  I’ll be as benevolent as I can be and say it’s total smoke and mirrors.  Why? Examine your purchase agreement.  Does it have three lines, 1) for the high bid, 2) for the BP,  3) the sum of 1 & 2, equal the total contract price?  Then who is collecting the BP? The Seller ! Therefore, who in reality is charging the BP?  The Seller !

Let’s examine the second point of my assertion, the BP is the auctioneer's commission.  Most auctioneer’s terms and conditions expressly state, the high bidder will pay a 10% BP (or pick a percentage) base on their high bid.  If the high bid equals $100, the BP is $10 and the contract price is $110.  At closing the buyer must pay the remaining balance of the contract price less the deposits he made auction day and other closing expenses.  So how does the auctioneer get “his” Buyers Premium?  The truth is he doesn’t, he never had it. Just look at the HUD closing statement.  The auctioneer's commission is a debit on which side of the statement?  The seller’s ! Here’s where the smoke comes into play.  Most auctioneers when pitching or selling this version of the BP to their sellers and buyers usually say, “it’s an in and out deal.  We collect the BP for the seller and he gives it back to me at closing”.  Do you honestly think the courts will look at it that way? The BP was never in your possession, therefore, it can not be  given “back” to you.

Earlier I mentioned that 1% of the time the BP is collected by the auctioneer and truly is her commission.  It occurs when, the high bidder must write two checks day of auction, one to the escrow agent for the deposit and one to the auction company for the BP.  I don’t know too many states that would allow this type of transaction, however, there are a few auctioneers using the BP in this manner.
So how should you pitch or sell the BP?  Try this; “The BP is a fee that you (Mrs. Seller) can charge the buyer to off set the expenses associated with this auction. You may use the money to pay my commission or the advertising expenses or both. But remember my commission will be based on the contract price, whether your property is sold before, during or after the auction”.  This approach eliminates 99% of the hassles associate with the BP, when the property is sold prior to or after the auction sale or a broker submits a purchase agreement on their form. However, it may be harder to collect a full 10% fee without the “Smoke and Mirrors marketing” some auctioneers use when pitching the Buyers Premium.

Comments

[Jason Smith]

Those are very interesting thoughts Marty. When I read the headline I really thought you were going to say that the bidder would reduce their bid by the amount of the BP therefore essentially reducing the money the seller would receive..... therefore the seller actually paid the BP but you surprised me.

I've seen that the BP is either loved or hated by auctioneers but your post is a real eye opener.

[Phil Wesel]

Well I may just be a hick auctioneer but I don't consider the buyers premium to be smoke or mirrors for that matter. The contract with the seller is up front as to who's money the buyers premium really is. It is the sellers money until we contract for the money to be transferred to us as part of the sale of real or personal property.

Moreover we are up front with the buyers that they will pay a contract execution price that has been increased by the amount they agreed to pay as a condition of participating in the sale. The fact that either of these parties may not be fast enough to calculate the fee into their behavior when committing to sell or to purchase the property is entirely fine.

In fact, it really does equate to a greater pie than if either party had done business the old fashioned way. The buyer says "I got a great deal, I bid $100 for such and such." The seller says "I got a great result, I got paid $100 to sell such and such" The auctioneer says I am happy too, I got $10 to sell this property" Sometimes knowledge is power and sometimes we all prefer to know a little less than we'd like to admit.

[Marty Rogers]

Phil,
Thanks for the reply to my post on Smoke and Mirrors Marketing. You might think from the post I'm against the use of the BP, I'm not. I can take it or leave it depending upon what's in the best interest of my client, the seller. But unless you are collecting two checks day of auction, one for earnest money & one for the BP. You are not charging or collecting the BP, the sellers is. As long as everyone's up front with that, I have no problem with the seller charging a BP. As a matter of fact it's probably good business for him or her, especially in the long run.
Marty