Consumer Reports: Penny auction warning

Penny auction websites advertise great bargains, but our partners at Consumer Reports Magazine say it's really a case of bidder beware.

While ads for these sites claim bidders may walk away with a electronics or a new iPad at fraction of retail, Consumer Reports says they may also lose plenty of money.

Prices on penny auction sites can start as low as zero, and each bid increases the price only by a penny or two.

Ads for sites including QuiBids and Happy Bid Day make it look easy to win expensive items like an iPad for $23.74 or a laptop for $8.82.

The Catch on Many Sites

Consumer Reports checked out these and other penny auction sites. As the clock ticks toward zero on an auction, Consumer Reports' Anthony Giorgianni found competition can get intense.

"The sites can make a lot of money when there's a bidding war because they charge you every time you bid." he said. "A typical bid costs 50 cents to a dollar, and the site keeps your money whether you win or lose."

So, if he winning price is $100, and each bid is 50 cents, the site could bring in as much as $5,000.

In addition, Consumer Reports says the clock is often reset in the final seconds, adding another 20 seconds to the auction over and over. So you have to drop out, and lose everything, or decide to continue bidding....and paying.

Amanda Lee founded a website called Penny Auction Watch after she had some bad experiences bidding. She found bidders can get caught up in the game.

"I once spent $200 in bids to win a $50 gift card, and I didn't even win it," Lee said.

Lee said she has won a few good deals on penny auction sites, but other times she lost a lot. She said she once lost $300 when a now-defunct site didn't send the items she has won.

"One way penny auctions sites typically suck you in is by adding seconds to the clock after every bid," Giorgianni said.

QuiBids Responds

QuiBids told Consumer Reports it loses money on about half of its auctions and that much of the profit from profitable auctions goes toward covering the losses from unprofitable auctions.

Quibids points out that, if you don't win, you can apply some or all of the money you've spent bidding you can put toward buying the item at the site's full price. However, Consumer Reports says you can often find the item for less at a regular retailer.

So you may decide it is a case of Don't Waste Your Money.