Why are buyers willing to pay the auction company a premium of 10 to 28 percent over the final selling price of an item, just for the privilege of purchasing it? Well, at least its not coming out of my money? is the most common remark from many consignors (sellers). Well, that may not necessarily be true. Where did the buyers premium originate? It started with the major New York City auction houses. In years past, auction houses raised their seller commissions whenever expenses started catching up with revenues. However, circa 1980, the big NYC auction houses realized that if they kept their current commission the same and passed the commission increase along to the buyer, it would give them an advantage in acquiring consignments. Consider it this way. Auction company A is charging a 25-percent commission, while auction company B is charging a 15-percent commission, while passing along a 10-percent buyers premium to the buyer. Who are sellers going to consign with? The auction house with the lowest commission, of course. The auction company is still making basically the same amount, but the perception to the consignor is that they are paying a lower commission. A reality of the auction business is that the bidders, hence the money, go to the auctioneer who has the best merchandise. And in order to compete for the best merchandise, more auctioneers were forced to resort to the buyers premium. Some auctioneers tried to resist the buyers premium, and some buyers tried to boycott auction companies that adopted the buyers penalty. But, the boycotts failed, and the buyers premium remains as prevalent today as ever. Why are buyers willing to pay the buyers premium? In my opinion, its because most buyers dont perceive it to be an additional penalty or cost. Rather, they simply view it as part of the cost of the merchandise. Consider it this way. If a buyer is willing to pay $1,000 for an item, and there is no buyers premium, the consignor will receive $1,000 less commissions. However, if a buyer is willing to pay $1,000 for an item, and there is a 20-percent buyers premium, that buyer will bid up to approximately $830, and with a buyers premium, their true cost is still around $1,000. And the consignor received only $830 less commissions. Increase the buyers premium to 30 percent, the consignors will receive only $775 less commissions for the same merchandise. Following this logic, if there was a 100 percent buyers premium, the seller would receive absolutely nothing. Therefore, in my opinion, the higher the buyers premium, the less the consignor will receive, and all potential consignors need to understand the concept of the buyers premium and its true financial impact before consigning to any auction. Whats it worth? Rather than ask, Why do people pay the buyers premium?, a better question would be, How much higher can the buyers premium go before buyers and sellers revolt? Today, some auction companies charge as much as 28 percent over the final purchase price for the right to purchase things at their auctions. Can the buyers premium go any higher? You can be certain it will continue to increase because auctioneers expenses will continue to increase. Will buyers pay a buyers premium of 35 percent, 50 percent, or more? Stay tuned. Because it can never increase to 100 percent. Can it? Mike Ivankovich is an auctioneer, appraiser, home downsizing expert, and host of the Whats It Worth? Ask Mike the Appraiser radio show that airs live in the Philadelphia area on Friday mornings from 9:30 to 10:30 a.m. EST on WBCB 1490 AM and on the internet at www.WBCB1490.com. You can also visit his radio show website at www.AskMikeTheAppraiser.com.