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Online Auctions: Deal or Steal?

Online auctions have become big business, with millions of items for sale at any given time. (5 million+ at eBay alone, right now.) Tens of thousands of people around the world currently make a full-time living selling items through Internet auction houses.

One reason for their incredible growth and popularity is that they make it easy for people to find great deals on hard to find items from around the world. The excitement also makes them prime hunting grounds for scam artists, ready to play on the desire many auction bidders have for that "unbelievable deal."

We want to mention right off the bat that the vast majority of sellers and buyers at online auctions are honest people, and deliver on their promises. According to eBay, only one auction in 40,000 on their site ends with a reported case of confirmed fraud.
That doesn't take into account unreported cases, and it's little comfort if you're the one in 40,000.

In fact, auction fraud accounts for roughly 48% of online fraud reports to the FTC. Almost 500 reports per week. And the fraud isn't solely committed by the sellers. Buyers can be just as sneaky.

So, what can you do to protect yourself, short of simply staying away from the online auctions? Plenty. The most important thing is to learn the ropes.

If we had to offer you just one piece of advice about buying and selling on online auctions, it would be to always carefully check the feedback on the seller you're considering buying from. We don't ever buy from a seller who doesn't have at least 10 positive reviews. (More on this later.) If you're the seller, check out the buyer's feedback as well.

Here are descriptions of the most common fraud seen at auctions, condensed from an article by Sharon Curry.

Misrepresentation: One of the oldest tricks in business. Just what it sounds like. Or more accurately, the merchandise ISN'T what it sounds like. Value, authenticity or condition may be overstated, sometimes wildly.

Failure to ship merchandise: The merchant takes your money and runs, leaving you nothing but a lighter wallet for your troubles.

Failure to pay: Through the use of fake money orders, bounced checks, stolen credit cards, or a number of other techniques, the buyer gets the goods and leaves the merchant with nothing in return.

Shilling: Artificially inflating the price on an item by use of fake bids from phony user IDs or accomplices.

Bid Shielding: Using high bids from phony accounts to run up the price and scare off potential buyers, the actual bidder then retracts the higher bids, getting the item at a much lower price than he would have otherwise.

Piracy and counterfeiting: The sale of pirated music and software or counterfeit art, phony jewelry or gems, and forged collectibles.

Internet Fencing: Selling stolen goods through the auction.

Triangulation: The seller offers to send you the item (usually new, brand name goods) on approval. They then use stolen credit cards to order the item shipped to you. You pay for the goods (in cash) after receiving them, and get a visit shortly thereafter from the police. Credit card fraud and theft.

The "Buy and Switch": The buyer gets the merchandise and returns a similar item that has been damaged, or a fake, with the claim, "It isn't what I expected." The seller refunds their money, and is left with broken and unresellable product.

Fee stacking: Fees, usually "related" to shipping costs, are added to the cost after the sale has been made.

Loss or Damage Claims: Not always fraudulent. After all, things do get broken in transit. Often these claims are a result of the buy and switch, or careless handling by the buyer.

Shell Auctions: No merchandise exists. The sole purpose of the auction is to get money or credit card numbers from unwary buyers.

Don't Defraud Yourself!
A lot of people use online auctions as a source of collectibles or antiques. In these areas it's just as easy (and more common) for people to defraud themselves through inexperience as for a seller to defraud them.

Here are a few examples of possible ways you can get yourself in trouble, from a friend who regularly buys gems and collectibles through online auctions:

Read the descriptions carefully. Look for "trade words," or phrases that give you a clue that the merchandise isn't what it appears to the uninformed bidder. If a ring is sold with the description "2 ct diamond stimulant," don't bid unless you know what "stimulant" means. (It means basically "anything that looks like a diamond.")

If there is anything in an item description that doesn't make sense to you, or that just makes you wonder, don't brush it off. That's almost always a valid warning sign. Ask the seller. And don't buy unless you're sure of the answer.

Read descriptions especially carefully when the title includes a lot of capital letters and exclamation points. Frequently these sellers are using hype and lots of adjectives to make an item look like a better deal than it is.

Don't discount these immediately, as some sellers are just enthusiastic about their goods. The prices in those cases are usually way out of line, but you can occasionally find a few good deals in these types of listings.

Watch for valid, but misleading, quotes. If someone quotes a price based on a guide, make sure you know what year the quote is from, and whether it's a retail or wholesale price. Several sellers on eBay list certain uncut trading card sheets as "Listed at $99 in the 1990 (or '91 or '92) price guide!"

That's true. And many people assume that collectibles increase in price every year. That's NOT true.

The early 90's were boom times for certain comic and fantasy art-related collectibles. Speculators drove prices through the roof. They have since come back down to rational levels that relate to their scarcity and the demand for the items.

Don't take quotes, even verifiable ones, as indicators of the real value of an item. Know the current value, and decide for yourself what the item is worth. Remember, you are the market... Know something about what you're bidding on, or get help from someone who does. This is especially important when buying anything on which you expect to make a profit/investment return.

As an example, there are a number of sellers on eBay right now who are offering "2000 Carats Of Emerald Rough For $20." To most people, that would sound absolutely too good to be true.

It's not. It's quite true, and about a fair price for the product to a rockhound, or a hobbyist who was going to facet or cab the (usually) low grade emerald content. A gamble, but a small and educated one, based on accurate information.

If you were buying it as an investment, you'd very likely be convinced that you were scammed when you saw what you had bought. There's a significant difference between "emerald rough" and "rough emeralds."

2000 carats is nearly a pound. That weight of rough emeralds (the uncut crystals) would be worth considerably more than that, even in very low grades. Emerald rough (in this case "mine run") is a few crystals and the actual matrix rock in which they're found. It wouldn't even make a pretty paper weight.

It's not unusual to see someone misunderstand completely accurate descriptions and bid far beyond the actual value of an item. In these cases, it's not the seller who's at fault.
You make your bid, you lie in it. Know what you're bidding on.

Look through past auctions of similar items, and see what they generally closed at. If you see the same thing sold by different sellers at around the same price, you can generally expect that to be the market price. Only bid higher than those prices if the item is unusual in some significant way.

If you see a lot of auctions by one seller that close with the item unsold, there's probably a good reason. Especially if other sellers are getting good prices for their wares.

Make sure the pictures are clear, and they're in scale. The best descriptions have pictures showing the product from multiple angles, and fully describe the condition of the item. If the picture is unclear, check the guarantee and the seller's feedback rating.

Use good sense in checking the ratings. A few negatives don't mean the seller is a crook. Look at what the total percentage is, and what the negatives actually say. Some people use the threat of negative feedback to try and extort from the seller after they've won a bid, and some people will complain about anything at all.

If the seller has 1500 positive feedback comments, and 10 negatives which they explain satisfactorily, (eg, slow shipment due to a vacation) you're probably safe. ;)

Whether you're buying antiques, ephemera, gems, jewelry or GI Joe dolls, your best protection is knowing the market.

Most sellers are on the up and up, and online auctions can be a great source of good buys. Be careful, but don't be paranoid.

And pay with a credit card or other traceable (and contestable) means.

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