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The pros and cons of online penny auctions

October 4, 2010 12:00:00 AM PDT
Want to buy a new iPod Touch for under a buck? How about a $200 Walmart gift card for five bucks? These are some of the most popular items being auctioned off 24 hours a day on penny auction sites.The first time Bruce Bargar bid on a penny auction site, he hit the jackpot, winning a new Apple MacBook laptop for just over $100.

Since then, he's won several items, including a $25 Kohl's gift card that cost him 32 cents.

Penny auctions work differently than traditional online auction sites like eBay. The bids usually start at one penny and go up a penny at a time for each subsequent bid.

But, unlike eBay, every time you place a bid, you're charged a fee, usually about 60 cents. So if you make multiple bids, you're charged each time, even if you lose the auction.

Even veteran bidders admit it's a bit of a gamble.

Jeff Palmer of Van Nuys says it can be thrilling bidding on auctions where the winner could pay literally pennies on the dollar for items that may be worth hundreds, even thousands of dollars.

He's won a number of penny auctions, including a computer keyboard, a mouse, several games, even a gram of platinum.

Penny auctions don't have a set ending time. Instead, there's a clock that counts down from as little as 10 seconds. And so if there's a bid in that last second, the clock resets to 10 seconds and the bidding continues.

And these auctions could go on and on, sometimes for days.

"It's sort of a game of chicken, where I'm bidding and you're bidding, who is going to stop? And a third guy is watching, and he turns away, and I stop, he looks back, you won," said Bargar.

In order to bid, the websites first require users to join and pay a fee that can range up to $160 or more. Those fees include a set number of bids.

Most sites allow users to place automatic bids if they're not planning on sitting in front of their computers.

Take a Nikon D-90 camera, for example. The auction site Swoopo says it's worth $1,056. When we checked in the bids were up to $192.96.

That means the camera, so far, has received 19,296 bids.

Multiply that by 60 cents a bid, plus the current high bid for the camera, and that means Swoopo will collect at least $11,770 for a camera worth just over a thousand bucks, and the bidding hasn't even ended yet.

Amanda Lee runs the blog PennyAuctionWatch.com where users post warnings about the dangers of penny auction sites. "It's a good industry for scam artists to get into and exploit," says Lee.

If you Google "penny auction scams" you'll often find links to sites like ActionNews25.com. It sounds like a real TV news site, but it's actually run by a penny auction site.

"It's just an industry that isn't regulated and there needs to be oversight and auditing of these sites, because it's really easy for people to rip people off," said Lee.

Jeff Palmer says what seems like an incredible bargain may not be, like when he bid several times on a wireless router.

"I finally won one," said Palmer. "But if you take into account the one I actually won and all the times I tried to get it, I really paid more than I should have for it."

While you may be able to pick up an incredible bargain, you can also easily overpay for items or spend money without ever winning an auction.


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