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Real Estate · License Law Violations and Discipline

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

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

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%)

  1. A The buyer's agent commission
  2. B A discount for qualified buyers
  3. C 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%)
  4. 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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About this topic: License Law Violations and Discipline

License law violations and discipline cover the grounds for discipline, the complaint and hearing process, penalties (fines, suspension, revocation), and the recovery fund. This is one of 20 Broker (State Law) questions on license law violations and discipline, each with a full explanation on a single study page.

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