Penny Auctions: Scam or Legit?

auctionThere is a lot of discussion online about whether penny auction websites are legitimate or scams that cheat you out of your money and time. In reality, the truth is somewhere in between, and depends a lot on the penny auction website you are using. Some of the more reputable penny auction websites are definitely legit and people claim to have saved a lot of money on products they win through penny auctions. However, other sites have been called scams, and have even shut down due to the complaints and lawsuits that have come about from the bad reviews of their services and auction methods.

Costs of using penny auctions websites

Unlike traditional bidding websites like eBay, where bidding doesn’t cost you any money and you only have to pay when you win an auction, penny auction websites charge for each bid you place. That means, you could spend hundreds of dollars on bidding and not win a thing!

Also, if you do win the auction, you still have to pay the final bid price to purchase the item, and often there are additional fees for shipping and handling (these fees vary depending on the website). Some (although it is very unusual) penny auction sites even charge an auction fee that is usually a percentage of the retail price of the item. Although all of these additional charges may feel like a scam, these sites are obligated to inform so that you know what you’re getting into. Therefore, make sure you have read all the fine print (terms and conditions to) to know exactly what bidding and winning auctions will cost you.

When you participate in an auction, each bid raises the bid price of the item by $.01. However, that is not the cost of the bid. Most bids range in price from $.50 to $1 (you can buy bids in packages, and the more bids you buy the cheaper the price per bid). So that means that if you bid 50 times on one item, it could cost you up to $50. If you’re bidding on an item against many other bidders, before you know it you could have spent hundreds of dollars, so be careful not to waste too much money because these auctions can go on for hours (and in some cases, days; although its best to avoid sites that allow bids to go on for more than a few hours) as the clock continues to reset every time there is a new bid.

So, while losing money with nothing to show for it may seem like a scam, that is how these auctions operate and you should know this upfront. Other costs that might be involved should also be communicated to you, although sometimes they are in fine print so it can definitely feel like you are being scammed. One example is that people have complained that they gave their credit card information in order to sign up for free and then found out they were automatically billed something they weren’t expecting. Again, be sure to read the fine print.

So, it seems that most of the problems and complaints related to costs come from customers not knowing their rights because they don’t read the fine print or the terms and conditions.

Scams to look out for

Aside from the communicated costs, there have been complaints of real scams that go on with these penny auction websites.

First of all, many users have complained that the items they won and purchased never arrived (or they had a much longer wait then the penny auction site told them), or what they got wasn’t what they were expecting (not the same quality or type, for example). Also, many users have had problems with customer service. Of course these problems vary greatly, and will depend on the site you are using. Trusted and reputable penny auction websites will send probably send you your items and provide good customer service, but not all sites provide these basic services apparently.

Another scam that some of these penny auction websites may run is using a computer program to automatically bid on behalf of the website in order to keep the auction going and the bid price going up (meaning; the website is competing against its own customers). Some sites also have their employees, friends or the owners of the site themselves participate in auctions as bidders to raise the bid and attract more bidders. This is hardly fair or honest.

People also complain that these sites are like gambling (although gambling commissions don’t recognize them as such); they reel you in and get you hooked, and you ultimately lose more money than you win.

Legal issues

There have been multiple complaints filed again penny auction websites through consumer protection agencies, and there are currently several class action lawsuits pending against several sites. These situations as well as other problems (not having enough customers and funding to keep the site going) have causes many penny auction websites to go bust. In fact, since the boom of penny auction websites in 2009, most of them have shut down.

Also, more often than not they go bust with no or very little notice. When this happens, it is most likely that their customers lose all their bids with no option for a refund. These are the types of risks that users take on when they sign up for penny auction websites. However, several penny auction websites have been able to stay in business, provide good service, and help their customers save money on the items they bid on.

Whether you think penny auction websites are a scam, or a legitimate way to save lots of money on items like electronics, jewelry and gift cards, and more; make sure you always know your rights and do your research about how these sites operate and what the different fees and associated costs are before you start spending any money. You’ll probably be glad you did.