Commissions and Fees: Hidden Costs of Buying and Selling at Auctions - AUCBURG
Commissions and Fees: Hidden Costs of Buying and Selling at Auctions
Participating in an auction can be thrilling, but the euphoria of winning a lot often gives way to surprise when you see the final bill. The price at which the auctioneer's hammer falls (the hammer price) is far from the final amount you will have to pay. There is a whole system of additional fees that significantly increase the final cost.
The Mathematics of Auctions: Why the Hammer Price Isn't Everything
Participating in an auction can be thrilling, but the euphoria of winning a lot often gives way to surprise when you see the final bill. The price at which the auctioneer's hammer falls (the hammer price) is far from the final amount you will have to pay. There is a whole system of additional fees that significantly increase the final cost.
The main hidden costs at an auction include the Buyer's Premium, various taxes, and artist's resale rights. A misunderstanding of these components can lead to seriously exceeding your budget. Therefore, before raising your hand to bid, it's crucial to make preliminary calculations and know exactly how much the desired item will actually cost.
Buyer's Premium: The Main Commission for the Buyer
Term
Description
Hammer Price
The price at which the auctioneer's hammer falls, excluding commissions.
Buyer's Premium
A percentage added to the hammer price, which the buyer pays to the auction house.
Final Price
The sum of the hammer price, the buyer's premium, and all applicable taxes and fees.
The main additional fee that every buyer encounters is the Buyer's Premium. This is a percentage that the auction house adds to the hammer price. Essentially, it is a fee for the auction's services: organizing the sale, expert evaluation of lots, creating the catalog, and conducting the event.
The size of this commission varies depending on the auction house and the value of the lot. It usually ranges from 15% to 25%. A sliding scale is often used: the higher the hammer price, the lower the commission percentage. For example, 25% on an amount up to $100,000, 20% on an amount from $100,001 to $1,000,000, and so on. The terms are always specified in the auction rules, which you must read in advance.
To better understand auction terminology, it's worth remembering a few key concepts.
Buyer's Premium: The Main Commission for the Buyer
Taxes and Other Fees
In addition to the buyer's premium, the final cost of a lot may include various taxes. Their type and amount depend on the legislation of the country or region where the auction is held, as well as the buyer's location. The most common is Value Added Tax (VAT) or its equivalents, such as Sales Tax.
It's important to note that the tax is most often calculated not on the hammer price, but on the sum of the hammer price and the Buyer's Premium. This further increases the final costs. For example, if a lot is sold for 1,000 units with a 20% commission (200 units), a 10% VAT will be charged on 1,200 units, not on 1,000 units.
Besides taxes, other expenses related to the acquisition of a lot may arise:
Shipping and packing costs.
Insurance for the item during transport.
Customs duties when importing the item into another country.
These costs are not always obvious, but they should be factored into your budget, especially when buying at international auctions.
Taxes and Other Fees
Artist's Resale Right or Droit de Suite
Another type of fee that many forget is the artist's royalty, known as Droit de Suite or 'Artist's Resale Right'. This is the right of an artist or their heirs to receive a percentage from each public resale of their work of art. This fee is not in effect in all countries but is widespread in Europe.
The Artist's Resale Right applies to works by living artists or those who died less than 70 years ago. The royalty amount is usually calculated on a sliding scale and is levied on the hammer price. For example, 4% on amounts up to €50,000, 3% on the next bracket, and so on. The responsibility for paying this fee usually lies with the auction house, but these costs are passed on to the buyer.
Key points to know about Droit de Suite:
Applies to original works of art (painting, sculpture, graphics).
Is effective when a professional art dealer or auction house is involved in the transaction.
Covers works by living or recently deceased artists (the term depends on the country's legislation).
Artist's Resale Right or Droit de Suite
How to Calculate the Real Cost of a Lot Before Buying
To avoid unpleasant surprises, you must calculate the maximum hammer price you are willing to pay in advance, taking all commissions into account. This will allow you to control your bids and stay within your budget. The process of calculating the full purchase cost at an auction can be broken down into a few simple steps.
Suppose you want to buy a painting, and your total budget is 15,000 units. The auction house charges a Buyer's Premium of 25% and a VAT of 10% (calculated on the sum of the hammer price and the premium).
Determine the base amount. The final price (15,000 units) consists of the hammer price (X), the premium (0.25X), and the tax (0.1 * (X + 0.25X)).
Set up the equation. The full formula looks like this: X + 0.25X + 0.1 * (X + 0.25X) = 15,000. Simplifying: 1.25X + 0.1 * (1.25X) = 15,000, which equals 1.25X + 0.125X = 15,000.
Solve the equation. 1.375X = 15,000. Therefore, X = 15,000 / 1.375 ≈ 10,909 units. This is the maximum hammer price you can afford.
By performing this calculation, you will know your exact limit during bidding. Always read the auction's terms and conditions carefully, as commission and tax rates can vary.
How to Calculate the Real Cost of a Lot Before Buying