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You Can Lose With Online Auctions

If you wanted to buy a camera or book today, your first thought might be to go to a store. You could also consider an online purchase from an Internet retailer. With increasing frequency, bargain hunters are turning to person-to-person online auction sites like "eBay" (http://www.ebay.com). The upside is fun and saving money. The downside is rip-offs and fraud.

eBay is the largest person-to-person auction site for buying, selling and exchanging of mostly used goods. It's like a combination online flea market and auction. With over a million items from more than 1,000 categories like antiques, computers, jewelry, sports memorabilia, toys and books, it brings individual buyers and sellers together.

Buyers and sellers need to be a bit cautious though. eBay is merely a facilitator. They won't help you if you're ripped off.

eBay's "User Agreement" is quite clear and in plain English says that, "Our site acts as the venue for sellers to conduct auctions and for bidders to bid on sellers' auctions. We are not involved in the actual transaction between buyers and sellers. As a result, we have no control over the quality, safety or legality of the items advertised, the truth or accuracy of the listings, the ability of sellers to sell items or the ability of buyers to buy items. We cannot and do not control whether or not sellers will complete the sale of items they offer or buyers will complete the purchase of items they have bid on. In addition, note that there are risks of dealing with foreign nationals, underage persons or people acting under false pretense. Because user authentication on the Internet is difficult, eBay cannot and does not confirm that each user is who they claim to be."

In my copy of Webster's, the definition of "let the buyer beware" quotes the eBay User Agreement.

How it Works

When you distill online auctions to their essence, they're like real world auctions. You bid and if you're the highest bidder, it's yours.

This is where the similarity ends though. Payment arrangements (often cashier's check or money order) are between buyer and seller. In addition, the auction house doesn't have the goods you've bought. They'll come directly from the seller. If you don't receive your goods or that once-in-a-lifetime gold necklace looks like it came out of a box of Crackerjacks, you may have no practical recourse. This may be especially true if you paid by cashier's check or money order.

It's Exploding

One analyst, Jupiter Communications, has predicted that consumers will spend $7.1 billion dollars through online auctions over the next four years. Yet another analyst, Forrester Research, has estimated that "ordinary folks" online buying will reach $14.5 billion by 2002. Pick your number to believe. It doesn't matter. The point is that this is erupting.

eBay went public in September 1998 and is one of the most popular Internet stocks. From its opening price of $18, its share price has skyrocketed to over $220. The company netted $7.9 million in profits in 1998 with $47.4 million in net revenue. It gets 600 million hits per month. Since it began, it has had over 42 million items for sale and over 160 million bids.

Fraud Issue

As for the fraud issue, eBay claims it gets 27 complaints out of every 1 million transactions. That doesn't sound too bad.

Yet, according the to the National Consumers League, fraud is a major problem with online auctions. When you consider that over the Net you have no way of knowing where your seller is and the practical difficulties in resolving cross-border long distance disputes, it's obvious that problems will occur.

Probably the most common scam is that the product you receive looks nothing like what you were led to believe you were getting. One cnnfn.com article gives an example of a disabled woman who bought a "lightweight aluminum wheelchair." She received an aluminum-folding chair with casters on the legs. Ouch.

In April 1998, the Federal Trade Commission brought actions against a Lakeworth, Florida man who advertised computers on eBay, received thousands of dollars and never delivered. He was eventually convicted of fraud and sentenced to six months home detention, three-years probation and ordered to pay restitution of more than $22,000.

In an effort to combat fraud, eBay offers several features. The most fundamental is its feedback system. Basically, before you buy from somebody, you can see what other buyers have said about this person. In addition, starting next month, purchasers will get free insurance for items with a purchase price between $25 and $200.

Some Tips to Prevent Fraud

Use common sense! That's my number one tip on how to avoid being a victim.

Look for answers to questions like, where is your seller located. Be extra cautious about sellers with free e-mail accounts like "hotmail.com" addresses and post office boxes.

What's the return policy? Will the seller provide follow-up services?

If you can, always use your credit card when you buy online. If you're defrauded, you can write to your bank and usually have the charge reversed.

Print out or save to your hard drive all shipping, warranty, financial information, and all other information relating to the transaction. If the deal goes sour, at least you'll have some documentation.

For larger purchases, consider using an escrow agent who can act as an intermediary to insure smoother and safer transactions.

Take the time to learn the value of the items before you bid. You should not assume that everything is a bargain. You can easily overpay in the online auction environment, so do your homework.

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