Understanding the Buyer’s Premium at Real Estate Auctions

Real estate auctions are among the most exciting rural events you can attend. Great land. Awesome camaraderie. High-octane bidding. It culminates into a great atmosphere that attendees are sure to love.

People should educate themselves on typical real estate auction proceedings, though. One example? The commission that follows, and with auctions, that’s paid by the buyer.

So, what is a buyer’s premium? Read on to learn about the hidden fee that can surprise auction bidders. Go into the next auction understanding the buyer’s premium.

Editor’s Note: This is not financial, investment, legal, or real estate advice. Consult with a financial planner, investment specialist, real estate lawyer, and real estate professional before buying or selling land at auction.

Understanding Buyer’s Premiums

In the most basic terms, a buyer’s premium is the fee paid to the auction house by whoever purchases the property. It’s an extra charge that the buyer pays on top of the sale price.

“It's a pretty common term throughout the auction industry,” said Dave Skinner with Whitetail Properties Real Estate. “It’s basically adding the commission on top of the sale price. So, you have your highest, winning bid. You're adding whatever percentage the buyer’s premium is on top of the sale price.”

The buyer’s premium is paid to the auction house, not the land seller, and covers important auction costs and charges. It’s how the auction company, auctioneer, and other parties generate income from the auction process.

Those familiar with auto auctions, personal sales, and similar auctions, shouldn’t automatically assume things run the same with real estate auctions. Oftentimes, buyer’s premiums vary greatly between auction types.

Furthermore, some states do not implement a buyer’s premium. Rather, the commission is paid by the seller.

“Not all auction houses or all auctions have a buyers premium,” said Joe Gizdic with Whitetail Properties Real Estate and Ranch & Farm Auctions. “ In fact, most states do not have a buyer’s premium.  Most states have seller commissions just like a traditional sale.”

Auction Costs, Auction Charges, and Auction Pricing

All of the auction costs, charges, and other pricing is baked into the buyer’s premium. According to Skinner, the buyer’s premium goes toward common expenses. He says the commission paid goes to the auction company. Typically, this covers the auctioneer, advertising, marketing, day-of-sale costs (i.e.: concessions, auction platforming, credit card transactions, etc.), and all other expenses incurred during the entire process.

Skinner also notes that marketing costs are oftentimes quite significant. Marketing the auction is a major cost, which is a big part of ensuring attendees see the sale details. Advertising is what gets buyers to the auction, and it’s a crucial step in the overarching process.

“The advertising cost can be significant on a big auction,” Skinner said.

Additionally, the auctioneer, other auction workers, and brokerage, require payment as well. (And you need to pay a great auctioneer to maximize the success of a sale.) The Land Specialist who brings the deal to the table must be paid, too. Other things, such as preliminary title work, are also included.

“They're all going to share that buyer’s premium,” Skinner said.

Expected Buyer’s Premium Percentages

The buyer’s premium is largely set in stone. This isn’t a negotiable percentage. It’s a fixed percentage that remains constant with every auction the auction house conducts.

Additionally, buyer’s premium percentages can vary from state to state and auction company to auction company. That said, much of the industry is settled on a determined percentage.

“Here in Kentucky, it’s a pretty standard 10%,” Skinner said. “There are some companies that might be a little less, but typically, buyer’s premiums are 10% of the sale price.”

This is good for sellers, as they don’t have to pay a commission out of the sale price. It works for buyers because they know exactly how much they’ll have to pay to cover the farm and the additional 10% buyer’s premium.

Real Estate Commissions: Traditional Listings vs. Auctions

Traditional real estate listings are significantly different than auctions. That’s true for how the property sales, and even who pays the commission. Generally, with traditional real estate transactions, unless agreed upon otherwise, realtors’ commissions come out of the sale price received by the seller. A purchase contract stating otherwise is needed for the buyer to cover the commission price.

Selling land at auction provides additional benefits and incentives to sellers. By implementing a buyer’s premium, this allows sellers to receive a larger portion of the final price. Of course, this is attractive and is one reason why more farms are selling at auction.

“When you're having discussions with landowners, they want to know what they can expect the bids to be,” Skinner said. “I think it just makes it easier on the seller to know, OK, the high bid was XYZ, and that's what I'm getting. It’s a bit different than with a traditional real estate transaction.”

With traditional real estate listings, the seller has the power to turn down offers. But once they accept an offer, unless the buyer agrees to help cover commission, the seller is on the hook for the 6% (or whatever percentage) of the sale price due at closing.

“On the front end, they know what they're paying,” Skinner said. “You have an advertised price. They know that advertised price, and if they get that number, they have certain fees to pay, with commission being one of them.

“With an auction, it’s different,” Skinner continued. “You kind of estimate what your high bid might be. But you know, it could end up being significantly more than that. So, I think it just allows the seller to know up front — the bid is this and that's what I'm getting.”

Bidders: Remember the Buyer’s Premium

For bidders, it’s crucial to remember the buyer’s premium. If you make the winning bid, expect to pay a 10% premium on top of the sale (hammer) price.

Of course, before the sale begins, the auctioneer will discuss all important sale points. They’ll announce all terms and conditions, including the buyer’s premium.

Bidders must remember to calculate the total costs as they continue raising their bid. Do the math beforehand, and know what your top bid can be with the buyer’s premium factored in. After all, it can greatly increase the total you pay.

For example, say you win with a top bid for a 25-acre tract with $4,000 per acre. That’s a total sale price of $100,000. The buyer’s premium for $100,000 is $10,000. So, the final price is $110,000. The higher the sale price, the more you’ll pay in buyer’s premium.

Land Selling at Auction

For sellers, there are no surprise costs to expect from the auction house. The buyer’s premium covers auction-incurred fees, and that’s paid by the buyer(s) on auction day.

“The buyer’s premium makes life easier on the seller,” Skinner said. “They know that bid is what they're going to get.

“It can make things a little stressful on the agent side, because you never know for sure who is going to show up at sale rooms,” Skinner continued. “But Ranch & Farms has a great track record of getting the right people in the room and bringing really good money for landowners going to auction.”

Without question, Ranch & Farm offers a top-tier auction experience. It continues the path of mastering, even revolutionizing, the auction process. It effectively brings sellers and buyers together so each can achieve their goals of buying and selling rural land.

For landowners looking to sell at auction, contact Ranch & Farm Auctions. We can answer questions and help with your auctioneering needs. For buyers hoping to purchase land, check out some of the upcoming Ranch & Farm auctions near you.

Published on 2025-09-03