In the day Michael Jordan announced his retirement from professional basketball with the Chicago Bulls, Scott Samuel of Woodridge, Ill., saw a unique and simple business opportunity. He spent $8 for 10 copies each of the Chicago Sun-Times and the Chicago Tribune and, within three days, had made nearly $100 peddling the papers to eager sports-memorabilia collectors through eBay Inc.'s on-line auction site www.ebay.com.

Samuel is just one of more than two million people who've registered on the wildly popular eBay, a site that's mushroomed since its inception in 1995 from a small trading community of a few thousand users to a megacorporation that's now one of the hottest stocks on Wall Street. Besides eBay, Internet users are flocking in droves to Auction Universe, Onsale's atAuction, Bid.com and countless other general merchandise and niche sites.

Altogether, there are as many as 2,500 on-line auction sites, estimates Samuel, chairman/chief executive officer of Honesty Communications, a company that provides services to auction sellers. Like eBay, many auctions primarily are person-to-person venues that resemble giant virtual garage sales. Others, like Onsale Inc., are business-to-person sales sites.

Looking for a "Lost-in-Space" lunch box just like the one you had as a kid? Want to buy a new digital camera for less than retail? Yearning to get your hands on a rare, mint condition "Peanut" Beanie Baby? How about adding Elvis Presley's dental X-rays to your collection of celebrity memorabilia? You name it, and it's probably been put up for bid on the Internet auction block.

The sheer number of auction sites, coupled with the volume of goods and services posted (eBay lists more than a million items every day), has propelled on-line auctions to the forefront of the burgeoning world of electronic commerce. As with any other type of Internet retail business, auction bidders must be alert to a small but growing number of rip-offs and scams.

Indeed, the National Consumer League's Internet Fraud Watch reports that auctions topped the list of the more than 7,700 fraud complaints it received last year. According to the Washington, D.C.-based organization, most complaints involved sellers who never delivered items or sales in which shill—or fake—bids inflated the price of an auction item.

Mark Dodd, chief technical officer of AuctionWatch, Mountain View, Calif., says it's difficult to quantify auction fraud because most questionable transactions go unreported. "Many of these [disputed] items are $20 and under, so if people are burned, they may chalk it up to experience and not really involve themselves further with the transaction."

Despite tales of woe, the majority of auction transactions end happily. For example, Samuel can recall only one disappointment out of the nearly 1,000 auction purchases he's made since 1997. 		      Before bidding,
      check out
      the seller's
      feedback profile
      and sales policies.











Auction scams
top the
National Consumer
League's list of
most frequent
Internet fraud. 		Window shopping
Fraud by individual users isn't the only fly in the auction ointment. Potential bidders also must ensure that the sites facilitating auctions are safe and reliable.

Some auction systems have been riddled with technical snarls. For example, eBay has suffered several outages that seriously affected the outcome of auctions on the brink of closing. Moreover, some smaller auction sites have been known to use older software that doesn't properly secure credit card numbers and other private financial information.

Before registering at any site, thoroughly read the company's policies and rules, study every tutorial and FAQs (frequently asked questions) page, and view the site's user bulletin boards. Usenet news groups also are a good source for inside information. Samuel recommends taking time to study active auctions for a few weeks, even months, before making your first bid.

Some nifty tools and services you should look for include:
  • Automatic bid updates
  • Transaction-based user feedback profiles
  • Histories of completed auctions
  • Photos of auction items
  • Search and sort features
  • User bulletin boards
  • Insurance or money-back guarantee programs
If you're concerned about security, Dodd suggests using only the larger, well-established sites. However, he says, that shouldn't discourage users from looking at smaller sites: "There are a number of smaller auction sites that are well-run, interesting, and provide decent opportunities for bargains." Many of those are niche sites targeting collectors and hobbyists. AuctionWatch, which provides links to about 200 auction Web sites, soon will include a site evaluation and rating system, Dodd says.



Getting a piece of the auction
Once you decide to bid on an item, it's time to do some detective work.

To protect users, many auction sites encourage buyers and sellers to leave comments about each transaction. These comments, or feedback, establish a person's credibility and reputation. Every eBay auction item, for example, includes the number of positive comments the seller has on file.

It's important to open those files and scan the comments. A person may have a high positive-feedback rating, but a close look at the file could reveal a large number of individual negative or neutral remarks. While eBay and others are attempting to ensure that sellers aren't padding their files with bogus feedback, you may want to e-mail a couple of commenters to ensure that the vendor really is reputable—especially if you're planning to bid on a high-ticket item.

If the seller doesn't have a feedback file, e-mail an inquiry. By establishing some friendly communication with the vendor, Samuel says, you can get a better sense of the person. A reputable seller should provide you readily with verifiable identification—name, address, phone number—and further information about the auction item.

Consider whether or not you're comfortable with the seller's sales policies. Is there a return policy and money-back guarantee? What are the shipping charges? Are there also handling fees? Will the seller send the merchandise immediately or wait until the check clears?

Determine the market value of the item you want. Some auction sites allow you to view completed auctions where you can see how much other buyers have paid for similar merchandise in the recent past. If the product is available on the retail market, do some comparative price checking through on-line discount sites such as www.buy.com and Onsale's www.atcost.com. For collectibles, consult pricing catalogs and Web sites devoted to your area of interest.

Next, fix a maximum amount you're willing to pay for that item and stick to it. Most sites allow users to enter a maximum bid so they don't have to stay on-line during the entire auction, which may last several days. The system automatically updates the bidding in small increments until the auction ends.

It's important to note when the auction closes. The most frenzied bidding often occurs in the last 15 minutes as serious buyers scramble to clinch the winning bid. This is when bidding wars can seriously inflate the price. If the bid price tops your maximum, you either can enter a new bid or quit. With hundreds of thousands of new auctions posting on-line every day, it's likely you'll have another opportunity to bid on a similar item. 		      Determine
      the market value
      of the item
      you want,
      set a maximum
      bid price, then
      stick to it.

















Sold!
After winning an auction, buyers and sellers work out the payment details. Because you've never seen the item (except, perhaps, for a photograph), you assume a lot of risk when you send your payment. Unless you're absolutely sure of the vendor's reputation, take whatever steps you can to protect yourself. The Federal Trade Commission offers several cautions:
  • Verify the seller's identity by obtaining a name, address, and phone number.


  • Avoid sending cash or money orders, and use a credit card when possible.


  • Investigate using an escrow service or paying
    cash-on-delivery.


  • Ask about the seller's return policy.
With every transaction, it's essential to follow auction etiquette, Samuel says. If the deal goes smoothly, leave positive feedback about the seller as soon as possible. In return, the seller is likely to return positive feedback to your file. Always try to iron out wrinkles without inciting an e-mail battle or negative-feedback war.

If the seller doesn't deliver after payment, lodge a complaint with the auction site. Auction sites routinely suspend users suspected of scamming or breaking company rules. You also can file a complaint through Fraud.org. Another option is to leave alerts on auction bulletin boards available at support sites like AuctionWatch and Honest.com. Be careful what you state, though. You may find yourself at the wrong end of a defamation (libel or slander) lawsuit.

Auction sites continually are taking steps to protect their customers. Some of those steps, such as eBay's recent suspension of firearm sales, have irked serious collectors. But every step ensures that auction buyers have a more-secure area to take advantage of a fun and exciting shopping alternative.





©1999 Credit Union National Association Inc.