This post was written by Marie.
Would you like to buy a $200 Target gift card for $2.03? What about a Toshiba Mini 10.1” Netbook PC for only $13.70? Who wouldn’t, right? But where do you find such deals?
As I write this article, these items are being auctioned off at a Penny Auction Site called QuiBids.com.
What is a Penny Auction Site?
QuiBids.com is just one of hundreds (if not thousands) of sites which operate Bidding Fee or Penny auctions. These sites offer brand new merchandise for auction at prices which often start at zero and increment by very small amounts (typically a penny) on each bid. They claim that customers can get the new merchandise at significant discounts.
QuiBids, for example, claims that the merchandise is discounted 95% and that this type of shopping is the future of internet shopping. Beezid.com – another such site – claims 99% discounts are possible.
If you are an avid eBay customer, you know that multiple types of merchandise are offered. New, new in package, used, antique, and etc. Penny Auction sites only offer new merchandise.
What Kind of Merchandise Is Offered On Penny Auction Sites?
You can bid on multiple kinds of new electronic equipment such as TVs, computers, Ipads and etc; gift cards for a variety of brick and mortar stores; new pots and pans; golf clubs; cookers; watches; knives and whatever other type of merchandise the owners of the auction sites can get from their suppliers.
How Does a Penny Auction Site Work?
Unlike eBay, the auction site itself usually owns the merchandise being sold. There is no trusted third party involved between the buyer and the seller.
The auction site owner puts the merchandise up for auction, item by item, with posted rules which govern each auction. The amount of time for which the auction initially runs and the amount by which the auction price goes up with each bid are two of the rules posted.
You, as the auction bidder must first register for the site. Some of the sites charge a registration fee. Then, you must buy a bid package. You must pay to bid in the auction. If you lose the auction, you do not get your bid money back. Bid packages vary between sites. Some sites offer promotional and bonus bid packages to entice visitors to register. Once you have purchased bids, you can start bidding – sometimes on the item of your choice. Each bid increments the final price by the pre-stated bid amount (again, this is typically a penny – hence the name penny auction). Each bid re-sets the auction clock, so that bidding continues.
When the auction clock gets down to zero, the last bidder wins the item. The winner must then pay the final auction price for the item as well as shipping and handling and possibly transaction fees.
Reasons To Avoid Penny Auction Sites
- You must register and may have to pay a non-refundable registration fee.
Multiple scams seem to occur in this area. Bid Hustle is cited on Sitejabber.com (a website that offers consumer reviews of businesses and websites) by multiple persons as having scammed them out of money in the registration process – offering ‘free’ bid packages which were actually charged to their credit cards for $150. The Better Business Bureau of Delaware warns against Bidrack – for charging new customer credit cards with a $99 fee when the customers were told the registration was free. It might be a better idea to use the local classifieds.
In addition, some sites have been reported to not use secured registration screens, meaning that you are providing your credit card information to the entire world, unprotected.
- As a new customer, you may not get to bid on what you want.
Some sites require new customers to bid on a separate set of items – usually lower priced ones – before they are allowed to bid on their preferred items.
Some sites require new customers to ‘get used to’ the bidding process first by actually bidding on bid packages!
- There is no trusted third party.
The auction site owns the merchandise. The auction site sells the bids. The auction site sets the increment that the auction price will increment with each bid. The auction site sets the shipping and handling charges. The auction site sets the transaction fees. The auction site sets the registration fees. The auction site is responsible for shipping. There is usually no appeal process. There is no user feedback process on most sites.
- You probably won’t win the item.
Since the auction clock resets with each bid, the auction process takes a long time to complete. The site owners are counting on bidders getting weary of watching the auction clock reset with each bid – and dropping out of the auction after spending bids on it.
Your chances of winning an auction decrease with the number of competitors bidding on the item.
Some sites don’t have many auctions going at one time, on purpose, to increase the number of competitors for each item.
Note that some sites (like QueBids) now offer the opportunity to buy the item outright even if you didn’t win the auction. On these sites, you can subtract the amount you spent for the bids from the suggested retail price to arrive at the price you must pay for the item. Who sets the suggested retail price? You guessed it – the auction site – typically based on the manufacturer’s suggested retail price.
- You will spend a lot of time watching and bidding on the auction.
Although each auction starts out with a specific end date and time, each bid resets the auction clock. Theoretically an auction could go on forever if new bids keep coming in. You may find yourself pulling all-nighters in an attempt to win that new Ipad!
- If you win the item, you may pay more than retail price.
By the time you count all of the auctions in which you partake, the registration fee, the transaction fees (if any), the actual price of the item and the shipping and handling fees – you may actually be paying more than you would if you had purchased the item outright.
In addition, according to USA Today.com, the Sitejabber founder (Jeremy Gin) stated that some sites use shill bidders (ringers) and automated programs to drive up the auction price and increase the number of bids you need to spend to get the item.
- If you win the item, you may not receive it.
In the article “Penny auctions promise savings, overlook downsides” by John McCarthy published on February 6, 2011 by Florida Today, one of the bad things for which consumers need to watch are scams where the merchandise is never shipped, even after paying all the fees, shipping and handling, and the auction price.
Good for Gambling and Gaming
Of course, if you are an avid gambler and have money to spare, Penny Auction sites can be an exciting game to play. According to The Sunday Times on September 19, 2009 in an article called “Bidding boom on the penny auction sites” by Laura Whateley “penny auction sites have been described as ‘the crack cocaine of online auctions’”.
Some people consider the Penny Auction sites to be gambling sites, since you are paying money with no guaranteed merchandise to be had in return. In fact, QueBids has had a lawsuit brought that it is a gambling site and should be regulated as a gambling site.
So, avoid the allure of shiny new electronics at bargain basement prices – you will save money and time by NOT frequenting Penny Auction sites for shopping!
Marie has written 38 articles on this blog. Marie at Family Money Values wants to help families understand the potential consequences of wealth. She encourages visitors to take the long view and pull all family generations together to nourish the family legacy and wealth.
Related posts:
I recently tried to warn my uncle about penny auction sites but he swears up and down that he only bids on the gift card. He claims that everybody is bidding on electronics so you can find a deal on gift card. I don’t really believe it though.
@Justin. Nice of you to look after your uncle. They don’t have much of these sites here in Canada so I am not tempted to use them.
Justin, I can see where folks like your uncle might get a kick out of the auction sites, just make sure he knows about all the scams out there and that the sites aren’t regulated!
Sounds like a scam to me!
They sure can be!
I tried one once to experiment for a blog post (okay…and I was interested:)). I didn’t win, and it took a huge amount of energy to keep bidding against other people. Oh well!
Too much time on bidding for me! Would you bid again?
Terrific article. Was thinking every personal finance blogger has to get in on this. How else can we get popular electronics for over 90% off? Thanks for researching, will stay away and spread the word!
Thanks! Wouldn’t it be great if there were no hooks attached?
I tried one of those sites out once because I had gotten a promo code for like 50 free bids. I didn’t win anything and if I kept bidding I would have had to pay for each bid over the initial 50. I suppose it is possible to get lucky and get a good deal, but it’s difficult to track how much you’re spending. Great for the owners of the site though!
Good for you for stopping at fifty bids!
Nice article.
“You will spend a lot of time watching and bidding on the auction.” That to me is the biggest drawback. What a time-suck.
101 Centavos – I totally agree – I’d rather spend my time on something that MAKES money or increases my quality of life!
[...] Prairie Eco-Thrifter provides seven reasons to avoid penny auction sites. [...]
I’ve had a few friends try to sell me on the idea of penny bids and, like Justin mentions, claim that if you bid on the less popular items, then you have a better chance of winning. While I can see how this might look attractive, it’s really no different than a penny slot machine at a casino. Because it’s a penny, it doesn’t feel like you’re spending much. But when you’re spending several pennies, over and over for hours, even a small win is not worth the waste. Like 101 Centavos, I especially hate the thought of wasting time. I can see how it could be fun for those who like to gamble, but it’s not really my cup of tea. I prefer to keep money in my pocket.
Did your friends talk about how much they spent over all on the sites? Or how much time they spend on the activities related?
[...] T. gives us Seven Reasons to Avoid Penny Auction Sites. She does a great job of explaining the evil that is Penny Auctions, from outright fraud to the [...]
Good Morning. I am the owner of a Penny Auction website called Bid-Bob.com (www.Bid-Bob.com). I came across this article and read each of the responses. Obviously as a site owner I have a different opinion of Penny Auctions, but you are all correct to be wary of scams. Here are three things I would recommend if you want to try one of these auction sites:
1) Read the ‘Fine Print’ when registering. In my opinion, any website that charges you to register is already giving you an idea about how they do business. Fee based, not customer based.
2) Make sure the site you try has Beginner Auctions, but still gives you the chance to bid on all the high-end items as well. Beginner Auctions should be designed to allow you to bid against other people who are at a similar experience level. But I don’t think sites should ‘lock you out’ of certain auctions until you win. It’s your money, you should be able to bid on the products you want.
3) Good sites should allow you to purchase a Bid Pack with a cost around $20. That’s a relatively low investment to see if you like the auction process, enjoy the entertainment factor, and believe you can win items that APPEAL TO YOU.
Thanks,
Bob MacReynolds
President, Bid-Bob.com
Winston-Salem, NC
(800) 908-2373, Ext. 1
@Bob. Thanks for your additional tips. They are much appreciated.