Understanding Buyer's Premium

Buyer's premium is the commission payable by the buyer to the auctioneer, calculated as a percentage of the hammer price and added to it. It is a standard feature of the international auction market, and it is disclosed in the conditions of sale for every auction.

Understanding it matters for one practical reason: the figure at which the hammer falls is not the figure you pay.

What the premium covers

The premium is the buyer's contribution to the cost of conducting the sale. On our side of the desk, that is cataloguing and research, photography, the condition assessment, the platform on which the sale runs, registration and verification, and the settlement and despatch that follow. In our fields, cataloguing is the substantial part: a collation, a comparison against the standard bibliography, and a careful condition note take a specialist a great deal of time, and that work is what allows a buyer to bid with confidence.

How banded rates work

Premium is usually charged in bands, at a lower percentage on the portion of the hammer price above a stated threshold. This is progressive in the same way as a tax band: the higher rate does not apply retrospectively to the whole sum.

An illustration with round numbers. Suppose a scale charges 26 per cent on the first £500,000 and 20 per cent on any amount above it. On a hammer price of £600,000, the premium is 26 per cent of £500,000, which is £130,000, plus 20 per cent of the remaining £100,000, which is £20,000: £150,000 in total.

The rates and thresholds that apply to a given auction are published with that sale's conditions of sale. Always read those rather than assuming a figure from another house or another sale.

Tax

Depending on where the sale takes place and where the property is delivered, value added tax or an equivalent may be charged on the premium, and in some circumstances on the hammer price. Cross-border deliveries, artist's resale rights where they apply, and import arrangements can each alter the position.

The invoice states the tax treatment applied to your purchase explicitly. Where your circumstances are unusual — an institution making an exempt acquisition, or a buyer arranging export — tell us before the sale rather than afterwards, because the treatment often cannot be changed once an invoice is issued.

Working out the true cost

Before bidding, calculate the total you are willing to commit, then work backwards to the hammer price you can afford. The components are:

• the hammer price;
• buyer's premium at the published rate;
• tax on the premium, and on the hammer price where applicable;
• packing, shipping and insurance;
• any import duty or charges at the destination.

For fragile, oversized or framed material, do not treat shipping as a rounding error. Conservation-standard packing for a large work on paper is a real cost, and it is far cheaper than the alternative.

Consignor's commission is a separate matter

Buyer's premium is distinct from the commission and charges agreed with a consignor. The two are separately disclosed and separately negotiated; a buyer is never asked to pay the consignor's costs, and a consignor does not receive the buyer's premium.

Ask, if the figure is unclear

If you are uncertain what a lot will cost you in total, write to us with the lot number before the sale closes and we will set out the arithmetic. It is a common question and a sensible one.