10.2 Graduated Commissions & Buyer Premium Invoices

Graduated Commissions & Buyer Premium Invoices

Section 10.1 treated one rate, or a rate plus a flat add-on. Section 10.2 treats two other PSI favorites: a graduated (sliding-scale) seller commission that changes as the hammer climbs through stated bands, and the buyer invoice that adds a buyer premium to hammer. Keep the stacks separate. The sliding scale is almost always a seller-side percentage of hammer. The premium is a purchaser-side add-on defined in Section 5-10. Adding them together without a contract that says to do so is how candidates invent a number that is not on the key.

Graduated commissions — add the bands

A graduated clause looks like "10 percent on the first $50,000, 8 percent on the next $50,000, and 6 percent on the balance." Each rate applies only to the dollars inside its band. Add the band results. Do not apply the lowest rate to the entire hammer, and do not apply the highest rate to the entire hammer.

Formula, band by band:

1. Band 1 commission = (dollars in band 1) × rate 1.
2. Band 2 commission = (dollars in band 2) × rate 2.
3. Band 3 commission = (remaining hammer) × rate 3.
4. Total commission = band 1 + band 2 + band 3.

If the hammer does not fill a later band, that band is $0. If the hammer is smaller than the first breakpoint, only the first rate applies.

Worked example A — $180,000 hammer, three tiers

Contract: 10 percent on the first $50,000; 8 percent on the next $50,000; 6 percent on the remainder. Hammer: $180,000.

1. First $50,000 × 0.10 = $5,000.
2. Next $50,000 × 0.08 = $4,000. After two bands you have accounted for $100,000 of hammer.
3. Remaining hammer = $180,000 − $50,000 − $50,000 = $80,000. $80,000 × 0.06 = $4,800.
4. Total seller commission = $5,000 + $4,000 + $4,800 = $13,800.

Check. A flat 10 percent of $180,000 would be $18,000 — too high, because the upper dollars are not at 10 percent. A flat 6 percent of $180,000 would be $10,800 — too low, because the first $100,000 is not at 6 percent. Stopping after two bands at $9,000 forgets the $80,000 remainder. $13,800 is the only figure that uses every dollar of hammer once.

Worked example B — $45,000 hammer, two tiers

Contract: 15 percent on the first $10,000; 10 percent thereafter. Hammer: $45,000.

1. First $10,000 × 0.15 = $1,500.
2. Remaining hammer = $45,000 − $10,000 = $35,000. $35,000 × 0.10 = $3,500.
3. Total seller commission = $1,500 + $3,500 = $5,000.

Check. A flat 15 percent of $45,000 is $6,750 — that applies the first-band rate to dollars that the contract moved to 10 percent. A flat 10 percent of $45,000 is $4,500 — that forgets the extra 5 percent on the first $10,000 (the extra is $500, and $4,500 + $500 = $5,000). Reporting only $1,500 is stopping after band one.

If a later item asks for seller net on the $180,000 lot and the only deduction is this commission, net is $180,000 − $13,800 = $166,200. Authorized expenses, if listed, come off after the commission (Section 10.3). Do not subtract the buyer premium from the seller on the way to that net unless 15-10(1)(D) says the seller receives the premium or a stated share of it.

Buyer premium invoices — add, then stop

Buyer premium is added to hammer to build the buyer invoice before tax. The usual arithmetic is:

Invoice before tax = Hammer + (Hammer × Premium rate) = Hammer × (1 + Premium rate)

Work these three. They are the numbers PSI-style items recycle.

$8,500 + 10 percent

$8,500 × 0.10 = $850. Invoice before tax = $8,500 + $850 = $9,350. The same result is $8,500 × 1.10 = $9,350. The $850 is the premium, not the invoice. The $8,500 is still the hammer and still the usual seller-commission base.

$45,000 + 15 percent

$45,000 × 0.15 = $6,750. Invoice before tax = $45,000 + $6,750 = $51,750. Or $45,000 × 1.15 = $51,750. This is the same $45,000 hammer used in graduated example B. Seller commission under that two-tier clause was $5,000. The buyer is looking at $51,750 before tax. Those two numbers answer different questions. Do not replace the $5,000 commission with 15 percent of $51,750 ($7,762.50) unless the seller clause is of invoice including premium.

Three parcels, one 8 percent premium

Three parcels knock down at $100,000, $75,000, and $125,000. Combined hammer = $100,000 + $75,000 + $125,000 = $300,000. An 8 percent buyer premium on that combined hammer is $300,000 × 0.08 = $24,000. Buyer invoices before tax, taken together, = $300,000 + $24,000 = $324,000. Or $300,000 × 1.08 = $324,000.

If the premium is per lot, you get the same $324,000 here because 8 percent of each parcel still sums to 8 percent of the total: $8,000 + $6,000 + $10,000 = $24,000. If one parcel were exempt from premium and the others were not, you would apply 8 percent only to the premium-bearing hammers. The item has to say that. On the combined-premium wording above, $324,000 is the buyer-side total before tax.

Who receives the premium — do not assume a split

Two disclosure rules sit on every premium item, even when the arithmetic is clean.

• 68 Ill. Adm. Code 1440.230(d) requires buyer-premium disclosure in sale-specific advertising. A sale bill that hides the 10 percent add-on is an advertising rule problem (Chapter 7) as well as a math problem waiting to happen at the cashier's desk.
• 225 ILCS 407/15-10(1)(D) requires the written auction contract to state the buyer premium and the party to the transaction that receives it. That is a P.A. 104-130 term. Stating that "there is a 10 percent buyer premium" without saying whether the firm, the seller, or a stated split receives it is an incomplete (D).

Default for settlement math, unless the contract says otherwise: the premium stays with the firm. Seller net is typically hammer minus seller commission minus authorized expenses. Do not credit the seller with half the premium because that feels fair. Do not add the premium to hammer and then take seller commission of that larger figure unless the compensation clause is written that way.

Walk this list on a premium item:

1. Identify hammer (fall of the hammer, before premium and tax).
2. Compute premium dollars as hammer × premium rate, lot by lot or on the combined hammer as the item states.
3. Add premium to hammer for the buyer invoice before tax.
4. Leave tax off until Section 10.3, and do not invent that premium is always inside the Illinois ROT base.
5. Compute seller commission from the seller clause — usually of hammer, sometimes graduated — without importing the premium.
6. Read 15-10(1)(D) for who receives the premium before you build a seller net that includes it.

Graduated commission and buyer premium can appear in the same fact pattern. On the $180,000 sale with a 10 percent premium, the buyer invoice before tax is $198,000 and the three-tier seller commission is still $13,800. Write both figures down. Then go to tax and settlement in Section 10.3.