WEB

An Overview of online Auctions

Online auctions can be an exciting way to buy and sell merchandise from all around the world - but there are pitfalls and it's important to be aware of the risks.

You have fewer rights when you buy privately - whether through a small ad in a newspaper or through an online auction. A seller who is not acting as a business is not covered by the usual consumer regulations - though if the person selling goods on an internet auction site is a business or trader, you retain your consumer rights. Individuals selling more than one item and those listed as "power sellers" may be classed as businesses rather than individuals.

To address this issue, auction sites to some extent will provide some safeguards and protection against fraudsters or immoral sellers who may use this method to get rid of shoddy, stolen or misrepresented goods. Whilst these measures are helpful they are only really useful when applied with common sense and an understanding of how to use them.

Bear in mind that whilst there are tools, safeguards and procedures the auction sites are not ultimately responsible for the transaction unless it is illegal or fraudulent in which case the auction sites will remove or suspend the seller permanently.

Most people are honest in their dealings and you should experience more pleasure than pain dealing through auction sites if you adhere to some simple rules. We will attempt to explain how to get the best experience whilst avoiding the bad ones.

We will use Ebay as our main example as they are the most popular auction site however, it is worth noting that whilst they are indeed in the number one spot you should also consider alternatives since Ebay's dominance has led to an inevitable rise in fees taking an ever increasing slice from sellers who find it less attractive for business as a result. Being aware of this and that there are choices out there is your best way of making sure healthy competition remains and value for money is maintained. Some newer auction sites as a result offer free listings and lower commission rates as an incentive so shop around if you are considering starting up a business using auction sites.

Auctions Styles

On Ebay there are an increasing number of ways of selling. Some of these are contradictory to "Auction" as you will see.

The Standard auction

This is the usual auction format. A listing for a widget has a start price, anything from .01p upwards. The seller has an option to put a reserve price which would show as "reserve not met" or "reserve met" if it exists but you will not know the figure. Auction time is set to 1 day, 3 day, 7 day or 10 day, (7 and 10 being the most popular) Bidding is fairly straightforward and takes place over the designated period. The highest bid at the point where the auction closes will get the item providing the reserve if set was met.

Bid increments are set by the auction site and differ according to the price, eg. prices of £50 might have a £5 increment whereas at £200 they've increased to £10.

The Dutch Auction

This is a variation which allows several items to be sold in one listing. Most of the above applies however, the rules on winners differ. Taking this example: 5 Widgets starting at 1p. The highest five bidders will obviously win one at the lowest price. ie. if the fifth highest bid is £5 but bidder 1 - 4 bid more than this, say £10+ all five people will get the item for £5.

The Standard and Buy-it-Now Auction

Introduced much later in Ebay's history was the buy-it-now auction. Initially this was designed to compliment the standard auction. So as per the standard example above in addition the seller can put a buy-it-now price of say £10 which would end the auction the moment any bidder clicked on it and confirmed. It provides the opportunity for the seller to get what they want for the item without waiting for the duration of the auction and uncertainty of the final price. To the seller it also means not having to wait if the price is acceptable it provides a quick transaction without the chance of being outbid.

There is a rule however on this combination; as soon as someone puts a bid in, the buy-it -now option will disappear unless there is a reserve in which case it will disappear once the reserve has been met. You can see how this might speed up an auction somewhat or attract earlier bidding.

Buy-it-Now Auction

As of fairly recently this is a format that can't really be called an auction, it's simply buy it or don't buy it. All you'll see it the Buy-It-Now price and nothing else. It's a pure sale take it or leave it. A lot of big sellers use this method increasingly for their goods.

The Offer Auction

Another recent addition which may be combined with the standard or buy-it-now format is to have an offer link. Here you can make the seller an offer which he/she will accept or reject. Very similar to a classified "o.n.o."

Bidding on Auctions

The online auction differs from normal auctions in a number of ways. Due to the nature of online auctions it is impossible to recreate a virtual room of people so some changes are necessary to accommodate this.

Auctions generally last for a number of days, the close date and time is clearly shown on the listing so you know how much time is left. Unlike an auction room then this is more like people passing by and leaving a bid and maybe coming back to see if they're still in the running. Due to this, some of the changes take this into account with features such as proxy bidding (explained below).

Also unlike an auction room where the winner is the highest bidder with no more competition left, in an internet auction the winner is the person who has the highest bid at the point where the time runs out and the auction officially ends.

Placing a bid is simple, once you are registered you can bid by clicking on the bid button and enter your bid amount. Of course you could keep checking this to see if you are still the highest bidder or you can enter a proxy bid and forget it till it ends.

Bidding terms and practices

Proxy Bidding

A Proxy bid is designed to avoid you having to constantly check the auction, simply decide what price you are prepared to go up to and bid this amount. The auction site will not simply dump all this money on the auction in one go, it will only put the next bid increment on on your behalf and continue to do this as other bidders put their bids on till your maximum bid is reached.

This is a useful function.

Sniping

Some people hate this but it is a common practice. A snipe is simply when someone sits and waits till the last possible moment before placing a bid and possibly stealing the winning bid. The success of this depends very much on the speed of your connection and how late you can enter a bit and have it registered. Bids can be placed in the last few seconds. If you don't like the idea of this, use the proxy method , after all you've decided the maximum you wish to pay so if a sniper comes along they will still have to bid more than your maximum to win.

General bidding practices

Many people really do bid much too early and given the differences between a real auction and an internet auction as described above this is pretty pointless if your aim is to get the best price possible. Given a new listing which has 7 days to run, putting a bid on day one can simply cause a bidding war pushing the price up pretty fast. Many people view an internet auction in the same way as an normal one and so this practice occurs. It is best to leave things to the last day if you can and if it's still a good price then you might have a chance of bidding in the last minutes and still get a good deal. Even using proxy bidding it's still worth waiting as an early proxy bid causes the same result.

The exceptions will be in the auction style (see above) a combined buy-it-now auction is designed to combat this. Remember that once someone bids the buy-it-now disappears unless there is a reserve. Some people will put a bid on this immediately just to turn it into a standard auction, others will consider the buy-it-now price and if it's good for them they might just snap it up. You will have to treat each auction on it's merits according to your own needs when encountering these.

Protection

Here is summary of what tools you have at your disposal to help you avoid a bad transaction.

Feedback

This is the main feature that auction sites use to help you determine who you are dealing with. It's therefore only useful if you use it and learn to interpret the information. Whilst there are no guarantees, feedback is a powerful tool for a few reasons. When someone completes a transaction they are encouraged to leave feedback which can be marked as positive, neutral or negative. This goes against the seller's record and shows as a percentage as well as the true number of good or bad feedback he/she has received.
Use this as your main tool but it is important to read the feedback rather than to just look at the numbers. A seller that has some bad feedback isn't necessarily untrustworthy. You can usually see from the comments if someone has left bad feedback unfairly. It happens and the auction site will rarely remove feedback. However, it does allow a response and when judging a negative take into account the seller's response. It is often a telling sign if you see that sellers don't respond constantly. Either they are too busy, deal in very high quantities, can't be bothered, or aren't honest.

There are of course cases where a good feedback rating might not be as good as you think. Take a look at it, have they been registered fairly recently and did they bump up their good feedback by buying a whole bunch of stuff at 1.50? Is this the first time they are selling something having done that? The con artist is aware that good feedback is the key to better results so will do anything to get it, whether it's hijacking someone's account or building up a quick bunch of transactions. So a bit of care in examining patterns will go a long way.

You are always encouraged to leave feedback on your transactions and this is essential. Bear in mind that many people might not leave bad feedback for fear of receiving a retaliatory on in return. Whilst this is understandable to a point it is one of the ways that a seller might bully you into making the main system fail. Therefore on principle it is highly advisable for you to do the right thing and leave feedback as you see fit responding to any retaliatory or unfair feedback. Make it fair and truthful and only leave negatives for more serious cases. ie. Don't leave someone bad feedback because it took longer to arrive than you expected.

Lastly on the question of retaliatory feedback, many of the bullies are also fraudulent dealers who keep their feedback in fair shape using this tactic. Although the auction sites won't remove such feedback there are certain cases where retaliatory feedback will be removed and that is when you've won a dispute against the seller / buyer in particular where fraud is concerned.

Standard protection

Ebay gives a standard protection on transactions on their site, other auction sites may do the same. With Ebay this amounts to around £120 less £15 admin fee so your maximum under this protection is £105. Beware of this figure as it will be little compensation if you are buying a costly item.

Paypal protection

Paypal is an auction payment method. It's real strength is giving the ability for buyers to pay by credit card without the seller needing to have facilities. Of course the seller pays a good chunk of his/her profits to Paypal but it does increases the possibility of their sales in this plastic orientated economy. Paypal is owned by Ebay now and there is a great push for people to use it as it makes considerable profit from its use. One of the incentives is a protection if you pay by Paypal, it's attraction (when shown on any listing) is that you are protected against a bad transaction up to £500. Paypal only gives this protection on seller's listings who have a feedback of more than 50 and 98% of it must be good! Obviously sellers that have this facility would be keen not to destroy it so it's a reasonable indication that you'd be dealing with someone who has a good reputation for keeping their customers happy. Use it when you can, paying by Paypal doesn't cost you anything, it's the seller that pays.

Escrow

In some circumstances you might feel happier using an Escrow service if both you and the seller agree. More expensive items are suitable for this. An Escrow company is a middle man who (for a fee of course) will hold the buyers money until the goods are received. Once they arrive and the buyer is happy, he / she can instruct the Escrow service to release the money.

Dispute resolution procedure

If it comes to it you have a procedure which allows Ebay or Paypal to mediate to try to resolve differences or problems. The financial liability of the auction sites is limited however usually to the protection they offer. However, disputes will also result in the offender being penalised and / or removed completely so it's an important facility and only works if you use it.

Community

There are forums on Ebay's site where advice problems and everything to do with auctions is discussed. Currently this isn't uses as much as it should. It is frequented by may experienced people who can offer you tips and help including warnings about current scams and how to avoid the pitfalls. Be sure to visit this area especially if this is all new to you or you need advice.

Goofbay & Auctionpix

A couple of useful sites for adding to your arsenal of tools. Here you can check for possible shill bidding (see later) or (as Ebay don't provide) see a member's negative feedback or a number of other pieces of useful information to help you determine if there's any unusual activity. Amongst other services are facilities to host your pictures for a listing, more powerful searches and other tools.

Check out Auctionpix and Goofbay.

What to Avoid

Here are some of the main things to avoid:

Shill bidding

This is where a seller will bid on his/her own auction to bump up the price, using a different ID or a friend. It's not obvious but there are a number of clues that might be present to arouse suspicions. Sometimes this involves a bit of research like viewing other auctions from the same seller and seeing if there's a pattern to the bidder's list. You could find for instance that the same name crops up on several auctions and perhaps that bidder has zero feedback and registered fairly recently. Sounds like a lot of work? Well yes it can be but this is where the above mentioned sites will help you out. Auctionpix will do the dirty work for you if you just put the number or ID of the seller in and will even point out the inconsistencies. If you find them then report them it's the best way to stop those offenders.

Stolen accounts

This is a popular way for fraudsters to deceive people as often they need to build up feedback to gain trust and once discovered they'd have to start all over again. This takes time and one of the ways around this is to hack into someone's account who has good feedback and take it over. Often these are little used accounts so less likely to be discovered but may also be live ones.

This is a hard one to figure out but again feedback is a useful thing to look at, perhaps they've not traded for a while and suddenly this listing is their first and for a high costing item? Alternatively you might see that they've bought only suddenly they are selling, or perhaps their past records reveal that they've only sold teddy bears and are now listing a bunch of expensive electronic goods. A few clues can be had to this scam but if in doubt don't get drawn in unless you've got the protection covering your transaction.

High Postage

Here is a typical practice that's on the increase particularly from Asian sellers (Hong Kong etc). Despite this being against Ebay rules it appears that Ebay does little to stop it however, whilst it may seem less to do with you and more to do with the seller circumnavigating fees, there is a definite consequence to you as a buyer. This is how it works. If the seller is listing an item that might be expected to be £100 they may list this as £45 but increase the postage accordingly to £55. Extreme cases (not uncommon) would be £1 buy it now, £99 postage. The seller pays commission on the price not the postage so they lessen their costs but it does affect you too. Suppose you had to return the item? Well the postage is not refundable so you'd only get £1 back (taking the extreme example) the rest is postage. The best advice is not to deal with these kind of auctions, you have no come back in the event of returning the product.

Tax

If you think buying is better from the US or Asia think again and consider that you will have to pay VAT and duty when your item passes through customs. Often auctions that don't state this are taking advantage of the people that may not consider this and the seller will not be responsible for any tax bills. Some sellers will state that they will mark the item as a gift or of lower value to avoid or lessen custom fees. Firstly, marking an item as a gift makes no difference to the customs they will take their cut regardless less a very small consideration if any. Secondly, marking an item with a lower cost may be risky, if this is discovered Customs (at least in the UK) will hold YOU responsible and any criminal charges will be aimed at you. On top of that the item will be confiscated. Assurances from a seller that "most of my items get through" is no guarantee and no help when you get that customs bill.

Fake goods

As with many products there is a huge market in fakes. Anything from branded clothes to compact flash cards. If the price is too good to be true, it probably is fake. The best course of action here is to question the seller to get assurances that the item is not counterfeit and have a means of checking this when it arrives. To give an example, Sandisk memory cards are notorious for being fakes on Ebay, I'd go as far as to say that the majority of them are fake, complete with clever labels and boxes making them look very genuine. Who checks their memory card when the packaging is so convincing, and if it works why worry? Apart from the fact that you've probably paid a high price for an inferior product it's likely to fail within a short period and your 5 year warranty isn't valid.

If you've no way to find out if what you buy is fake then leave it alone it's not worth it. In the case of the Sandisk example, a simple phone call to Sandisk will get you a confirmation over the phone in a few minutes. If you find the item is fake report this to Ebay and / or Paypal and file it as fraud.

Location misrepresentation

Since Ebay outlawed this practice there are still people who do it, particularly the Chinese sellers. You might search for items from the EU but still get Hong Kong sellers because they will list the item location as Germany, Hong Kong for instance. This is deception and can be very annoying. Report them to get Ebay to correct their methods. Some times you may find instances of the location showing from an EU country and find that when it arrives it's been sent from Hong Kong. Same applies.

Too good to be true?

Covered above but as always the saying goes "if it's too good to be true it probably isn't". Don't get fooled.

Paying by Western union & Moneybrokers.

When it's too good to be true and the seller insists on you paying by Western Union or other similar money transfer service you know you are being set up. Why? This method of payment is completely untraceable and the companies that operate them make it easy for someone to withdraw the cash without proper identification. You will most likely lose your money and you've got absolutely no come back whatsoever.

One of the tricks you might come across to get you to use this is the seller will tell you that he will send you the item and you pay the money to Western Union under a different name, perhaps one of your family. He will tell you that all you need to do is give him the transaction number so he knows the money is waiting but since this is in a different name he can't touch it. When you receive the goods you'd then phone WU and tell them to change the name to his so he can then withdraw the money. What in effect WILL happen is that he will use the transaction number and a fake ID and withdraw the money and disappear. It's as easy as that, a child could do it!

The advice here is DON'T pay ANYONE this way whatever reason is given!

Paypal surcharge

As used to be the practice many people would charge a surcharge for paying by Paypal, this is because Paypal take 3-4% from the money paid in. Ebay some time ago outlawed this practice but you will still find people trying to charge this to you. You don't have to pay it and any dispute that arises out of this you will win. It's as simple as that.

What actions should I take when encountering fraud

You should always report it to Ebay and Paypal, get as much proof as you can before doing so. Where larger sums are involved you be advised to also contact the police.

• Leave feedback (remember if you prove fraud retaliatory feedback will be withdrawn by Ebay)
  
  
• Warn other buyers and encourage them to report it. You can do this by listing looking at the seller's completed auctions and contacting the winning bidders. Ebay does not seem to make this easy, for instance they will only allow you to contact 10 people in any 24 hour period due to spamming. They are also considering disallowing any access to winning bidders which seems strange and might lead one to believe that they are not keen on stopping such sellers. It remains to be seen but do what you can, you will be helping others avoid the scams.
  
  
• Contact the manufacturer if applicable. Where you need proof of a fake or an item that doesn't seem right you can often get relevant information directly.
  
  
• Contact the police if it's serious enough.
  

Remember if you just accept a refund and resolution you will leave the fraudster to continue operating and affecting others. Many fakers will keep their feedback clean by offering a refund to those who find out. It is not morally right or good practice to just accept this as though they've done YOU a favour.

Notes

Buying from abroad

If you buy from traders in EU countries many of the rights you have in the UK still apply. Be aware that in the USA and elsewhere problems could be more difficult to resolve so check the small print. International complaints can be sent to Econsumer, and the Office of Fair Trading website provides helpful information.

Duties and Taxes

In the EU, VAT is handled by the supplier but in the USA and the rest of the world you may need to pay customs, excise duties and VAT. HM Customs and Excise has useful advice.

Escrow
EBay recommends that you use an escrow agent if you are spending more than £250. An escrow is a trusted third party that for a small fee holds the buyer's cash until the goods have been received and inspected. When the buyer is satisfied, the escrow is instructed to send the money to the seller. To avoid the possibility of fraud, it is advisable to use escrows recommended by the auction site itself, rather than by the seller. Escrow.com is the eBay approved escrow company, and the UK Payment service PPPay.com includes an escrow service.

Resources

The Internet Guide to Auctions

UK Auction Help

EBAY - safety

Visit UKOrbit's Consumer & Advice Centre for further help and information.