As the holidays approach, we naturally start thinking about finding a great deal on exactly the right gift for that special someone. Just when you think it could be time to downsize that gift idea, the $15.00 iPad or $25.00 diamond bracelet email comes in. Sound almost too good to be true? It is.
Penny auction sites have become big business. The sites work by letting you buy a “bid pack,” which is much like buying chips at a poker table. In poker, you go in with the realization that you are gambling. The penny auction sites make it sound as though their form of gambling is risk free. Nothing could be further from the truth—even if the auction site offers a guaranteed purchase price for the item to be purchased.
First, let’s look at how the penny auction sites make their money. One way is by selling those bid packs mentioned above. Each time you bid, you use a portion of your bid pack. If your final bid is $60.00 on a $1,500.00 computer and you’re not the winner, you’re out $60.00. Some of the auction sites will give you an opportunity to buy the item for a guaranteed price that is steeply discounted. This still sounds good—unless you were bidding in multiple auctions for the same item. If you were in three auctions and bid the same amount in each one, but didn’t win and decide to buy the item, you’ll still forfeit your bids in the other two auctions—unless you want to buy three computers.
The other way these sites make money links back to those bids. The big question is, how many people bid on that item? That number is probably fairly high on electronics and other hot merchandise, which means the company is pocketing the lost bids and using the revenue to cover their cost of buying the auctioned item.
Another complaint about penny auction sites is the increasing use of “organized bidding” to force out legitimate bidders. Even the well-liked sites are starting to see more complaints about this type of activity.
While most are not a scam, penny auction sites should definitely be on the list of things to avoid if you don’t have money to burn or don’t like surprises. Otherwise, your Christmas budget might need a quick adjustment.
AllPennyAuctions.com lists hundreds of auction sites and ranks them based on user reviews. You can also lookup items and research when to bid and how much they sell for on average. You can look up user histories and determine which auctions are give you a better chance of winning. Using the gambling analogy, this is like have a sneak peek at the other players’ cards.