Buyer's Premium at an Auction?

Question

I'm currently negotiationg to buy a home that is being auctioned. The auctioneer states that if we ratify a contract, the earnest money and 10% buyer's premium are due at that time. If I default at any point from then on, I not only lose the EM deposit, but I also lose the 10% premium. Is this standard?

Tom Gimer · Answer

Yes and no. In a typical auction the deposit required to register to bid is often advertised as a dollar amount. The winning bidder needs to increase the deposit to equal a percentage (often 10%) of the high bid within x days. Through this process the deposit and the buyers premium become one and the same... and the auctioneer's fees are fully protected.

In your case it sounds as though you're making a pre-auction offer, so it wouldn't make sense to make the deposit in stages... it would all be collected up front, and the auction company obtains the same security.

Regarding purchaser default, yes the deposit would be forfeited. Not only that, if the property is then reoffered and resold for less, the defaulting purchaser might also be pursued for the deficiency plus advertising expenses of the resale. This would all be spelled out in the property information packet / terms. Good luck.

Chris Seveney · Answer

@Jackson Tate

Yes this is typical of going through an auction company