Penny Auction Sites: Bidder Beware

In the ads for penny auction sites like QuiBids, you hear of bidders who won cars, computers, TVs and other pricey items for just a few dollars. Curious about how these sites worked, our investigative in-laws at Consumer Reports recently scrutinized them and found that while the one winning bidder might get a good deal, you’re more likely to spend a bundle to end up with nothing.

“You could get a bargain, but generally, you stand a very small chance of winning the amazing deal they advertised,” said Tony Giorgianni, associate editor, Consumer Reports. “For everyone who gets an amazing deal, many others spend a lot of money only to be disappointed.”

In a number of ways, these sites operate like traditional auctions, with potential buyers placing ever-increasing bids until the clock runs out and the highest bidder wins.

But where these sites differ from traditional auctions is that it isn’t free to bid. Bids are often sold in pre-paid packs, with sites charging anywhere from $25 to $60 for the smallest packs. Some sites do offer refunds on unused bids, though sometimes within only 30 days of when you buy them.

So once you make a bid, that money is gone. And if you’re not the winner, you’ve just spent money solely for the chance to bid on something. CR gives the example of someone who places 100 60-cent bids on a $2,000 computer. If you’re the winner, you’ll pay whatever your bid was plus shipping charges in most cases. But if you lose, you’re out $60 and have nothing to show for it.

As for people who think they will cleverly sneak in near the end of the auction snag the prize without having to buy too many bids, Consumer Reports warns:

First off, lots of your fellow bidders will have the same plan, which is why you’ll typically see a flurry of bids coming in as the clock is about to run out. And whenever someone bids, up to 15 to 30 seconds or so is added to the remaining time. As a result, you never know when an auction will end, even if the clock has ticked down close to the last second. Participants often bid again and again, extending the auction sometimes by hours or even days. That’s especially likely to happen for hot products such as iPads, big-screen TVs, and other electronic gadgets. Some bidders get so carried away that they’re determined to win no matter how many times they have to bid and how unreasonably high the price goes.

Back in August, we asked Consumerist readers if they’d ever tried one of these sites, and many of you expressed a high level of skepticism. It looks like your doubt-radar was spot-on in this case.

Read the full story from Consumer Reports here.