Auction Mathematics, Settlement, and Recordkeeping
Auction Mathematics, Settlement, and Recordkeeping
This domain tests accurate money handling: commission, buyer’s premium, sales tax, expenses, net-to-seller, and the paper trail. Most errors come from applying a percentage to the wrong base or forgetting that buyer and seller see different totals.
Core formulas
- Buyer’s premium = hammer price × premium rate. Buyer total = hammer + premium + applicable sales tax + other disclosed fees.
- Commission = hammer price × commission rate unless the contract says otherwise. Seller net = hammer − commission − seller expenses − other charges.
- Sales tax, where applicable, is computed on the taxable base stated by law; do not assume the premium is tax-exempt or taxable without checking.
- Settlement statements should show the gross, each deduction, and the net. Trust or escrow funds must be segregated and accounted for.
Worked example
A taxable goods auction hammers at $12,000. The contract sets a 12% buyer’s premium and a 10% seller commission; advertising is $300. Buyer’s premium is $1,440, so the buyer’s taxable subtotal is $13,440. At 7% sales tax, tax is $940.80 and the buyer pays $14,380.80. Seller commission is $1,200; seller net is $12,000 − $1,200 − $300 = $10,500. Do not compute commission on the $13,440 unless the contract expressly says so.
Traps
Charging commission on the buyer’s premium by mistake; forgetting sales tax on taxable goods; commingling trust money with operating funds; and keeping no bid or settlement records.