Are Penny Auction Sites A Scam?

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I thought it was time for me to spend some time being Eddy the teacher and explain to you what the heck penny auctions are. You've probably noticed them all over the web especially on PTC sites like Hits4Pay, Clixsense that many of you look at each day. If you're anything like me you've probably thought to yourself ‘What in the world is this?'. Or you may have just assumed these things are scams as my cynical ass did. But you know what they say about ‘assuming'. I decided to take a closer look after a few people had asked me about them and reading an article.

What is a Penny Auction?

A penny auction site is a kinda simple Simon competitor to eBay. The owner of a Penny Action website has merchandise and/or gift cards up for sale. Each time someone bids, the price goes up by a penny. It also adds more time to the auction. None of that squeeze in at the last megasecond and getting your bid in. Depending on the site there could be popular merchandise such as an ipad, iphone, etc. Or it could specialize in one kind of thing or be just gift cards. Most are a combo. You have probably seen the ads, Bid Cactus, BidSause Beezid are a couple that come to mind as ones I see all the time. Ultimately the benefit of a penny auction is a place where you can win in demand products, gift cards, etc at a fraction of the cost.

Of course it is not THAT simple….

Here is the deal, in order to have the chance to place a bid, you must first join the website and put $10-20 on account. Say what? That's what I felt too. In any event, each time you place a bid, not only does the price of the item you bid on go up a penny, but you pay the Penny Auction website a fee for the ‘privilege and opportunity' to bid. This will be anywhere from 5 cents to a buck fifty per bid. Ummm….? Okay, let's try to keep an open mind and not jump to conclusions here. Although just reading that it sounds like the Penny Auction site owners are already winning here. But keep reading, there is a method to this madness. So lets get to it.
To make this explanation easy I am going to pretend there is a Penny auction site called BidEddy. You joined and put $20 on account. Now, BidEddy has a $50 gift card up for auction. The final bid that you happened to win was $10. (Remember, the draw of these sites is buying good stuff for a lot less money.) When you win, you will pay the $10 for the gift card from PayPal. You also along the way paid BigEddy $1.00 ( automatically deducted from your account) for each bid you placed. In this case you made 10 bids which ended up being $10. Bottom line, it cost you $20 (plus shipping and handling) for the gift card. So it was a bargain deal. There will still be $10 on account to use for a future auction.
Now the website owner not only got your $10 for the 10 bids you made, but they got $1.00 for each bid all the other people who were bidding on the gift card put in. Say there were 20 other folks trying for this thing and each of them put in 10 bids, That would be $200 they collected just from the bids. They made $150 on the deal. Now if only 4 other people were bidding, and each put 10 bids they would have brought in $50 and broke even. so you see how they make their money to pay for the stuff they sell and let you buy for less. Sounds like a pretty sweet deal for the owners and the lucky folks that happen to win. But more so for the owners of these sites. lol
Please note BigEddy Auction does not really exist. Although now that I know how this all works, a brother might consider starting a site like this. lol

What merchandise is usually found on penny auction site?

They are going to go for the more popular items, because if you think about it the more interest, the more bids, the more bids, the more money they make. So electronic stuff is big, but you can find other things too. Gift cards are probably the most popular. The best sites will have lots of choices for you, and not be a one horse show. If it were me, I would start off with gift cards to get the hang of it.

Is there a way to tell the best Penny Auction sites?

Here are some points to consider to help you determine which sites are worth your time. You can tell how long a site has been around and how legitimate it is, by how many auctions are going on. Some will have eight going at once. With new ones starting and other ones ending every few minutes. This means they are making money. If you run across on with just one auction at a time, or that it only runs once a day, you know it is a new site.
This does not mean it is a scam! It means there are not as many people yet making the owners money. However with fewer people you might have a better chance of winning a bid, but you can also be taking a risk this may end up being a scam site. But if you've been on my site long enough you already know how to avoid scams. It's called research! Following the steps in my scam video can be applied to researching any Penny auction site. Nothing changes, always do your research before joining a Penny Auction site and you should be able to find the best ones based on the feedback out on the web. If someone is doing dirt and has been doing it for a while, it will be out there. And if there is no information out there about a given Penny Auction site, keep it moving. Stick with ones that have a proven positive history.
Keep in mind every company will have a few complaints here and there. You just want to avoid companies that have more consistent complaints than praise.

Warnings….

There are three things in particular to watch out for with Penny Auctions. Your scam research would probably make this evident. But it's worth noting anyway.
One: and probably the most important thing is for you to be sure that there are real people are bidding and not what they call ‘shills,' who are friends, family and employees they set up to put in fake bids to up the price and make you put in (and pay for) more bids than you needed to.
They also might use ‘bots' which is an automated scripts that also artificially raise prices. Both of these practices make it impossible to win a bid this way and defraud you of your money.
Here are two ways to tell if this is happening. Check the bid times, if the same person is bidding all day and all night, it is probably a bot. If you are more sophisticated you can go in and find the site traffic statistics and compare that to the number of bids. If there are a 1000 bids an hour but the Google stats say there are 50 visitors an hour, something is fishy.
Two: make sure the company delivers the merchandise. You can be sure there will be loud and clear complaints online when people pay for something and do not get it. This is one reason to use Pay Pal, it is easy to get a refund with them if something pops off.
Three: Credit Card Fraud. Not surprisingly there are some Penny Auction owners out there who defraud you by over charging your credit card. Your bid was $50 and when the statement comes you see they charged you $150. This is just one of the tricks they play. Pay Pal avoids all of that, as you must approve ahead of time any money being sent.
This does not mean not to use your credit card. If you did the research and it is an established site, with good reviews and a solid reputation, and you see they not only offer credit card put also Pay Pal you should be fine. If it is brand new site, with questionable reviews or for a new site no reviews and they only offer credit card with no Pay Pal, that is a red flag. Go to a different site. Why take unnecessary risk?

Now lets turn things around and talk about what you can look for

1. Take a good look at exactly what each site is offering and make sure there are enough things that you would normally buy. Don't bother registering if the items for sale are not things you are interested in! A vegetarian will not be served by an auction site that specializes in Omaha Steaks.
2. Don't register to get one thing that looks like a bargain, when the rest of the stuff on there is not up your alley. For example say there was a great deal on an answering machine and you notice that they also advertise DVDs and you think great, I can also pick up some DVDs cheap. But when you go look at the titles they are all KungFu movies that are a dime a dozen out in the real world. This site might not be for you. Find another one with kitchen appliance AND other things you know you would buy.
3. Think Christmas. Take a look and pick sites that you see good potential for those Christmas gifts and you can grab some of these gifts all through the year at great prices.
4. I mentioned this before, but it's worth saying again. Be sure there are enough auctions. You want auctions that are ongoing and the best ones will have multiple auctions going on at the same time.
5. Look for what seems to be the most sensible price on bids. The now defunct BidEddy charged a buck and bid and that frankly is a bit high. Between fifty cents and seventy-five cents is more like it. Once you get good at this, you can play around with higher bids for products you really want, and you have learned some bidding strategies. The decision on if it is worth the price is up to you. The website has to do what it can to make it worth your while.
6. The same thing goes for the number of users. We talked before to make sure the number of users matches the bids, but there is a balancing act involved. Too many users make it hard to win bids, too few users and they can't afford the good stuff. You kind of just have to pick one of them, and learn some strategies like off hour bidding.

What I dislike about Penny Auction Sites?

– Well, the main one that comes to mind is the chances of winning a bid. Each time you bid, you pay average 50-75 cents, if you do not win, that is money down the tubes. You have to be right on top of it and watching to strategically place your bids. You do not want to pay a hundred dollars in bids over several auctions for a $50 gift card. There is no way to guarantee you will be the last bidder as each time a bid is made, more time is added to the clock, so someone else could step in and out bid you.
– From what I can tell, this could be time intensive. You must be there for the last two minutes of the auction, and as long as bids are put in, time is added and that can go on for 5-15 minutes longer. You can't leave, as you have to strategically get you bid in.
– You need to be organized and do pricing homework. You must know what the retail cost of the item you are going as well as the Amazon or other discount prices that you can find. Be sure to add on any shipping and handling fees! Then you must keep track of your bid price and the running tally of the number of bids you make. Here is the hard part, you have to put the competitive spirit away and train yourself to stop when it gets close to what you could buy it for off line. You only win if you get a really good bargain, not when you win the auction. The penny auction sites bank, and I mean all the way to the bank, on your competitive nature taking over.

So are Penny Auctions as scam?

At the end of the day, I think Penny Auctions sites might be a good way to save yourself some money if you keep in mind the observations I've made above. But as always be aware of the scamming sites and do your research! By the way, if this article didn't really do it for you in terms of fulfilling your hunger to learn legitimate ways of making money online, check out my recommendations page or jobs page. That should fill you up.
In any event, has anyone tried a penny auction site? If so, please share your experience below. Or if you have some tips or advice, feel free to chime in as well.
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