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Penny Auction Sites: Does Paying to Bid Really Result in Great Deals?

photo: steakpinball

Live penny auctions, in which people paid a small fee to place bids, were popular decades ago. Now they’ve joined the world wide web, with sites like Bidhere.com, BidSauce.com, and QuiBids.com, attracting customers using expensive items like TVs and iPods and bids starting at less than a dollar. Depending on the site, each bid can cost between ten cents and $1.

As Rick Day, founder of BidHere, explains, “each time someone bids, the price of the auction goes up by two cents and the timer resets by 15 seconds. Each bid costs sixty cents. If the timer hits zero and no one outbids you, you win.”

BidHere has its suppliers ship products directly (at no cost to the auction winner), so users aren’t dealing with individual sellers like on eBay. Their biggest supplier agreement is with Amazon.com, but they also buy products that are being discontinued so users can potentially score a deal on those items.

According to the site, recent items won include an Apple iPhone 4 32GB Black for $15.02 (which retails on Apple’s site for $299 and up with a 2-year contract and tends to sells for $600 or more without a contract on eBay) and a Nintendo Wii Console for $8.90 (the Manufacturer’s Suggested Retail Price is $199.99 and eBay has all kinds of bundles with consoles and games for around $350-400).

Sounds like a pretty sweet deal, right?

Not necessarily. Keep in mind that those auction prices do not include the amount of money the auction winner spent on bids, not to mention all the other items they’ve probably bid on and lost.

We’re not endorsing (or condemning) any of the sites mentioned in this piece, so exercise caution if you decide to try it yourself.

Online auctions can be addictive, and with penny auction sites, you can invest a lot of time and money bidding, yet walk away empty-handed. Even Day admits that “it’s easy to get carried away. It’s important you know how much you want to spend and you know what you’re doing.”

Few people know this better than Amanda Lee, who discovered penny auctions in March of 2009 and has won several items, including a $1,700 iMac for $300 and several designer purses. In the process, though, she’s also lost a lot of money bidding and read about the shady practices of some penny auction sites. That’s what prompted her to found PennyAuctionWatch.com, a watchdog site that allows penny auction users to post reviews and share information.

Lee says she’s seen sites that “have admitted to never shipping items to the customers.” Despite this, she still occasionally uses penny auction sites, especially those like BigDeal that offer a “buy it now” option. Yet, she says, it’s an area that needs oversight.

According to Harlan Spotts, a professor of marketing at Western New England College in Springfield, Massachusetts, customers are drawn to auction sites for two reasons. First, there’s the lure of high-value items at a deceptively low price. Then there’s what he calls the entertainment factor. “[Some people] enjoy the entertainment value of being involved in the auction,” as Spotts explains. “They don’t have to win, but they got enjoyment from the process.”

However, as mentioned above, the rush of bidding on items can prove addictive. “Some people liken it to gambling, the concept of slot machines,” says Spotts. “People keep pumping money into slot machines in the hopes that they’ll win. Sometimes you do, sometimes you don’t.”

Then there’s the issue of credibility in an online environment. The Better Business Bureau recently issued a warning about penny auction sites after users of some sites noticed a $150 charge on their credit card bill just for signing up. (Sites defend this as their “annual membership fee,” adding that consumers should have read the sign-up information more thoroughly.) Other sites are accused of using computer bots to automatically bid, driving up prices.

To avoid this situation, Lee suggests that consumers do their homework. “Read over everything carefully,” she says. “Check and see if [the auction site] lists a business name. Read reviews on the internet. Join my forum and ask questions. Sometimes I look at Alexa rankings. If a site has 500 bidders and has no traffic, that’s a sign that you want to steer clear.”

And what if you still get stiffed? Not winning an item is one thing , but if you’re convinced you’ve been the victim of an online fraud, Lee recommends reporting the site to the Attorney General’s office. “Even if they have an off-shore address, if they’re doing business in the United States, they still have to be accountable in the United States.”

Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.