Real Estate · General

What is a 'buyer's premium' in an auction-style real estate sale?

Correct answer

An additional percentage paid BY the buyer on top of their winning bid — the total cost of the property is the winning bid PLUS the buyer's premium (typically 5-15%)

A The buyer's agent commission
B An additional percentage paid BY the buyer on top of their winning bid — the total cost of the property is the winning bid PLUS the buyer's premium (typically 5-15%)
C A discount for qualified buyers
D The premium paid for buyer's title insurance

Why this is the answer

BUYER'S PREMIUM is a percentage added to the winning bid at auction that the buyer pays to the auction company or auctioneer. Example: winning bid $450,000; buyer's premium 10%; total cost to buyer = $495,000. This is different from most traditional real estate sales where the seller pays commission. The buyer's premium must be clearly disclosed in the auction terms before bidding. In distressed property and estate sales, buyer's premiums of 5-15% are common. Buyers must account for the premium in their maximum bid calculations — a buyer who bids $450,000 thinking they'll pay $450,000 may be shocked to owe $495,000 plus closing costs. Agents representing buyers at auction should always review auction terms and explain the buyer's premium to clients before they bid.

Source: Real Estate State Exam, Buyer's Premium at Auction

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What is a 'buyer's premium' in an auction-style real estate sale?

Why this is the answer

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