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Are Penny Auctions a Scam?

August 15, 2012 by 6 Comments

I get a lot of email from companies that want me to share their products or services with you, the lovely readers of PocketYourDollars.com. As I read each of those emails I’m a cross between a momma bear and a gentle southern pastor. I want to share good information that will help each of us grow and be better financial stewards, sort of like a good-hearted pastor would be over their flock of sheep. It’s all peaceful and good in those moments.

But in a flash, I can turn into a momma bear (it isn’t pretty). It happens when a company tries to tell me that their product or service would be very valuable to those in the Pocket Your Dollars’ community, but I think they are full of it. I think their products are harmful and deceptive.

One type of company that makes me turn into a big fat momma bear are penny auction sites.

What is a penny auction?

A penny auction website runs auctions on popular merchandise – often electronics like iPads, computers and gaming devices. But these aren’t auctions like what you’ll participate in on eBay.

These are pay-to-play auctions. You buy the right to bid. Despite the name, bids aren’t a penny, but $0.50 to $1.00 each. In order to participate, you are required to buy a “pack of bids” which start at $5 or $10.

The bottom line: bidding at a penny auction is a gamble. You will spend money. You may or may not have anything to show for it.

Understand the rules

Although each penny auction site operates by their own rules, you can be sure that the fine print is slanted in their direction. A few examples:

Shipping

If you were able to win an auction at one of these sites, you’d be responsible to pay shipping and handling. Those charges vary by product and aren’t usually disclosed up front.

Bid bots

In computer-speak a “bot” is a non-human computer program that performs some sort of action. For instance, Google has “bots” that go and “read” all the webpages on the internet so that Google knows what is out there and what to present in search results when you are looking for something. Penny auctions are not regulated like casinos and can use “bid bots” that automatically bid against humans without much consequence.

To me, that is the same thing as gambling in a casino where the slot machines may or may not be rigged.

Time extensions

Back when e-commerce meant buying something from one of two websites – Amazon or eBay – I was an eBay-er. I’ve bid on lots of things and won (and lost) plenty of auctions. One thing I often looked at on eBay was the “time remaining” clock. As a bidder I find it useful to know how much time is left until the auction closes.

With penny auctions, the auction duration is often extended with each bid that is made. For instance, imagine that you decide to get into a bidding war with 2 minutes left on the auction clock. Each time you make a successful bid, time is added to the auction clock. Then, a bot or a human successfully bids against you, which adds more time to the clock. It’s like NFL where the last 2 minutes can drag out forever, but each bid is income to the penny auction site.

Buy-now options

If you were to bid and lose on an auction, you typically have the option to “buy now”. The auction site will let you buy the item you were bidding on – at a price they determine, which isn’t usually the best deal on the web – minus the cost of any bids you made. It’s one way these sites try to distance themselves from the gambling label.

So, are they a scam?

I haven’t and wouldn’t ever bid at a penny auction site, personally. To me, it is a form of gambling with potentially-less-than-fair and less-than-clear rules. Sure, some penny auction site owners claim they lose money on half the goods they auction away, but you don’t know if you’ll get that or if you’ll get sucked into spending $50 to lose an auction.

If I had to rate them on a scale of 0 being totally legit and 10 being a Bernie Madoff ponzi scheme, I’d rate these about a 7.

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Were you familiar with penny auction sites before reading this article? What is your experience with penny auction sites?

Are there other products or services that claim to provide great deals, but you wonder if they are too good to be true?

Filed Under: How-to articles Tagged With:
About Carrie Rocha

I am passionate about helping people live within their means so they can get out and stay out of debt. I live in Minneapolis, MN with my husband and two little girls.

  • amy irene

    I had no idea about these sites! thanks for the warning.

  • http://www.northerncheapskate.com Christina @ Northern

    I've heard a lot about these sites, and even tried one a few years ago that gave me free credits (never had to enter any payment info), and the more I know, the more I STAY AWAY. There's just no way to win, and because you start out spending only "pennies" it is way to easy to become addicted. If you want to gamble, play legitimate sweeps and instant win games through reputable businesses you know and trust. It won't cost you a dime, and you get the same thrill.

  • Kelly Ann

    I have had some experience with these sites (one in particular that is no longer active) and I have to say your article is spot on accurate.

    I joined a site in October of last year because a family member was heavily involved in it and singing its' praises. There was one item that I had been wanting so I set about trying to win it. You could get caught up in the end of an auction and spend all day (literally!) trying to win because the time keeps getting reset. I didn't know then that there were automated bots bidding up the prices and keeping the auctions going. There were some items that sold quickly, but they were cheap overseas knockoffs of products. The name brand items always went higher than what the retail cost would be (especially if you work the sales and any possible coupons).

    My relative went crazy on this site and was getting boxes and boxes full of stuff for about 6 months before the site we both belonged to started going under and not sending him his winnings. I saw most of what he won and it was almost all junky stuff that you could find at any flea market for way cheaper.

    I came to my senses quickly and asked for a refund of my initial bid pack purchase, which thankfully I received. It was their guarantee, and even then they made me fight for it. I was happy that I requested it when I did, because soon after the site started shutting down and many people did not get their refunds or even the products they had paid for.

    I was angry at myself for getting sucked into this and not being a wise steward of what the Lord gives my family, and I was so thankful to get out of it with my money refunded. I would tell everyone to stay far away from these sites, they're not worth it!

  • scat

    Thanks for publishing this information. I came to the same conclusion when I investigated these sites a few months ago. People need to remember that if it sounds too good to be true, it probably is. There are legitimate ways of saving money but one needs to beware of scams. Nobody goes into business to give things away.

  • opie

    Complete scam! I didn't realize what was going on until I had already bought a ton of extra "bids" with nothing to show for it. You get sucked in to the thrill of the fight, than realize that it has to be rigged as you never win. I did finally cave and bought a "buy now" mp3 player after losing out on several other "deals" when the cheap player finally arrived it has no name, make, or model associated with it and didn't come with any instructions so you have no idea how to load it. Needless to say it has been tossed in a drawer until someone can figure out how to use it. Wish you had posted this months ago, but hopefully it will deter others to make the mistake I made.

  • Michelle R

    My husband used his free bids and won me a $50 Kohl's gift card from one (end price was about $3) – but I think he was just very lucky as he had over 150 bids and by the end of the auction he had 3 left. At this site bids are approximately 60 cents each if you actually buy them. That means if he had paid for those bids – it would have cost him $90 + $3. So, yes, it's totally a gamble – but you may get lucky.