What Every Consumer Should Know About Penny Auctions

The concept of a penny auction is both simple and brilliant. It’s not like a normal auction where bidders compete to purchase an item by arbitrarily raising the price, resulting in higher sale prices for the auctioneer. Traditional auctions let buyers find rare items. They’re not about saving money. But penny auctions are just the opposite. 

 

 

In a penny auction, the values rarely go over the market price because the bids are set to specific increments, usually one cent, thus the name. A high definition television might sell for under $100 even after fifty bids, because the price only rises a fraction with each successive bid. But the cost of each bid is much more than a penny. 

 

 

The action of bidding must be purchased in advance, which means you would not bid endlessly on a single item lest you end up spending more than the items is worth. In a traditional auction, your entrance fee is the most you might lose. In penny auctions, you can lose as much as you pay for in bids. To add to the pressure, the auction clock resets every time a bid is made to create more competition.

 

 

The amount you can save on a penny auction will surprise you. Lucky bidders can get high-ticket electronics for 10% of the purchase price on a lucky day. However, once the cost of bids is factored in, that savings is much less, even though bids can often be purchased at significant discounts in packaged amounts. The winner saves a bundle. And the losers waste even more.

 

If you factor in the cost of the bids, every time you win an auction you can save more than eighty percent off the retail price. However, the ratio of how many auctions you win will dictate how much money you save in the long run. In short, the more auctions you win, the more you save.

 

 

Like stocks, penny auctions are essentially a form of gambling. The bids are tantamount to casino chips. Every time you bid on an item you are investing real money, and like a casino game, more often than not you will lose the auction. 

 

A consumer may spend over $1,200 on bids, only to come away with a $1000 notebook computer. Worse yet, one could spend $1,200 on bids and walk away with nothing at all. The winning bid for the computer may only be $50, but every penny increment in the auction cost a consumer roughly 75 cents. Fifty dollars works out to 5,000 cents or $37,500 for the auctioneer, less the cost of the notebook. 

 

 

Sites often offer certain incentives to even the playing field a bit. In some auctions, the top non-winning bidders may get their bids back at no charge. Some sites claim to offer cash back to losers, but most reports suggest such advertisements are merely ploys to get unwary consumers to buy bids. No money is coming back, win or lose.

 

One way that penny auction enthusiasts look to weed out unscrupulous sites is to look for a “Buy it Now” option, which they reason shows that the auctioneer actually has the item in stock. But this is no real assurance. 

 

The immediate purchase price is often the highest possible retail value on the market. Auctioneers know the people on their sites aren’t going to buy now for full price when they can find a discount elsewhere without gambling away their hard earned money. Throwing up such an option is no guarantee the merchant will honor it.

 

Scam artists have also been accused of bidding on their own items to give the appearance that the consumer has lost a bid, when in reality they never had a chance to win the item to begin with. While there are some legitimate penny auction sites, the entire process is still just a gamble. 

 

Some say the best way to avoid scams is the check with the Better Business Bureau. I say you should just avoid the penny auctions, save your money and find the product at discount after you have saved the full purchase price. Put what’s left in your retirement account!