More and more people are turning to online auctions in hopes of finding top-notch goods at fire-sale prices or making a few bucks off the baubles and gadgets collecting dust in their garages. As they grow ever more popular, auction sites are becoming a magnet for the unscrupulous. In fact, according to Internet Fraud Watch, operated by the National Consumers League, online auction complaints were the number one Internet fraud complaint in the U.S. in 2005.
Auction sites are scrambling to combat fraud, but the nature of online commerce makes it virtually impossible to eliminate it totally. Here are ten tips to help you avoid some of the common pitfalls.
1. Educate yourself. Start slowly, whether you're a buyer or a seller. Carefully read the auction site's rules and FAQ pages before listing an item or making a bid. Spend some time on a particular site to get the lay of the land. When you're ready, start by bidding on relatively inexpensive items or, if you're selling, first sell a low-cost item or two. This reduces your risk while you learn how online auctions really play out.
2. Check out sellers and buyers. Take the time to find out more about the buyer or seller you're dealing with. Check out feedback on the other party -- auction sites allow users to post positive or negative comments about their experiences with other users. Don't deal with users with negative feedback or no feedback. And remember, you can't always believe positive feedback, because a user can use an alternate email address or a friend to pad their feedback with undeserved praise.
3. Check retail prices before bidding. Don't assume you'll get a great deal -- or even a good one -- just because an item is being auctioned online. Internet auctions have become such big business that brick-and-mortar retail stores are selling their goods online at regular retail prices. Check the price of the same or a similar item elsewhere by searching online stores, classified ads, and/or auction sites for comparable prices. Don't forget the costs of shipping and insurance, which may make buying locally a better deal.
After you've figured out a fair price for the auction item, set the highest price you'll pay and stick to it. If you don't, you may get swept up in the heat of the bidding moment and end up paying higher than retail.
4. Watch for shills. Some sellers will employ a second email address or a friend (called a "shill" in auction lingo) to artificially pump up the prices for a particular item, forcing a buyer's bid upwards or sometimes prompting a bidding war. Do a search of a seller's past sales and feedback. If you see the same few names again and again, a shill may have bid on several things the seller has offered, to artificially jack up the price of the seller's offerings.
5. Choose a safe payment and shipping method. Buyers should pay in a way that can be traced, such as with PayPal or a credit card. (Never send cash, and never send payment to a P.O. box.) You can dispute credit card charges if the seller never delivers or misrepresents the goods. Always use a traceable shipping method (such as FedEx, UPS, or some types of U.S. Mail), and insist on shipping insurance. Because the buyer will have to sign for the package, she can't say she never got it.
6. Buy items with insurance or guarantees. Unfortunately, if you've sent money and the other side doesn't come through with them item as promised, distance and lack of contact information can make it very hard to collect. When you're shopping on eBay, look for items that are covered by PayPal Buyer Protection. With it, you get free protection of up to $1,000 on your purchases. You can also buy insurance from PayPal for a small amount that will guarantee most purchases.
7. Use an escrow service for expensive items. You may want to consider using a reliable escrow service, such as Escrow.com, when you are buying an expensive item. Here's how escrow services work: The escrow company collects and verifies the payment from the buyer, then notifies the seller, who ships the item. If the buyer finds the merchandise satisfactory, the escrow company releases the funds to the seller. If not, the buyer sends the merchandise back to the seller. The escrow service charge users a percentage of the sale price (usually from 3% to 6%).
8. Record every step of the purchase or sale. Print out all details of every transaction, including the original product description and the bidding history. Take pictures of items you send and receive. Also print all email correspondence and the contact information for each buyer or seller you deal with.
9. Report any problems. Contact the auction site's customer service department if you have trouble with a buyer or seller. In addition, you can register a complaint with the National Fraud Information Center (www.consumer.gov/sentinel).
10. Use common sense. If something is too good to be true, it probably is. Watch out for fakes -- online auctions have been known to list counterfeit collectibles, watches, and handbags. For rare or collectible items, have the seller send you a signed, written statement describing the product and its value before you pay for it.
The vast majority of online auction transactions are completed safely, so if you follow these tips, you shouldn't get burned.
Copyright 2008 Nolo