Here’s an interesting question I got over the weekend…
Seems like every time I turn on the TV, I’m seeing a commercial for one of those auction sites where they name all kinds of stuff and say it sold for practically nothing. Is it true? And if it’s not, how can they say that on TV?
For those of you who aren’t familiar with what this reader is asking about, here’s a Quibids ad I found on YouTube.
Back in August, the FTC issued an alert about these types of sites, and Consumer Reports also did a recent write-up explaining how they work. Here’s what you need to know in the fewest possible words.
Penny auctions: how they work
Penny auctions differ from regular auctions in several important ways.
- You’re buying stuff from the auction site itself, not a third party. In other words, eBay is an auction site that matches buyers and sellers. Quibids is like a store: They’re selling things they own.
- In a traditional auction, only the winner pays anything. In a penny auction, win or lose, you pay to bid. Before you can participate in a penny auction, you’re required to pay for a packet of bids, with a minimum total cost of $25 to $60. Once you bid, your money’s gone. Some sites allow you to get refunds for unused bids, some don’t.
- While the price of the item you bid on may move up in increments as little as one cent, each bid can cost as much as one dollar. So when something like a $500 iPad sells for $23.73, each penny of that sales price might represent as much as $1.00. In that example, the bid site didn’t get $23.73 for their $500 iPad, they got $2,373.00.
- Each bid adds to the remaining time. Penny auctions start with a clock that winds down – the person with the highest bid when it hits zero wins the right to buy the item at the winning bid price. But as people bid, more seconds get added to the clock. Auctions can theoretically be extended for days.
- You can pay retail if you lose. Many sites allow you to apply your losing bids to the retail purchase price, should you decide to buy the item anyway.
Add up all these differences between penny and traditional auctions, and you can see that penny auctions aren’t really auctions at all in the traditional meaning of the word.
Should you try one?
If you’re about to pay retail for some item that you actually want, one might argue you have nothing to lose by trying to buy the same item at a bargain price from a penny auction site. Maybe, if the retail price the website charges is as low as you can find the item elsewhere. (They also typically charge shipping and handling – some also charge a restocking fee if you return it.) But you also have to consider the hassle of signing up and the possibility, however remote, that you’ll get carried away and spend more than the value of the item.
Before you attempt a penny auction, plug the website name and the word “complaints” or “rip-off” into your favorite search engine and see what comes up. You might also check out a website called Penny Auction Watch for reviews. And above all, watch a few auctions and see how much people are actually paying for these “bargains.”
Got more money questions? Browse lots more Ask Stacy answers here.
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