Buyers, Sellers Need Auction Education

New Tips: Choosing and Using Online Escrow Services

Online auctions are very popular. According to a Harris Interactive survey commissioned by the National Consumers League and released on January 31, 2001, nearly a third of American adults who go online have participated in them—more than 35 million people. Most auction goers are happy with their experiences and confident that they won’t run into trouble. But four in ten buyers and half of the sellers said they’ve encountered problems with auction transactions. And online auction fraud is the top complaint to NCL’s Internet Fraud Watch (IFW). To make the most of this exciting new marketplace, auction participants need to know how to protect themselves from fraud and other problems.

Most auction bidders are looking for bargains, hard-to-find items, or things they collect. The average purchase is $100 or less, but some people spend much more. Many buyers pay by sending a check, cashier’s check, or money order directly to the seller.

“That’s fine if everything goes smoothly, but if there is a problem, by the time you discover it your money is gone,” said Susan Grant, IFW director.

Some auction sites have “feedback forums” where buyers can post messages about their experiences with sellers, but only half of the bidders surveyed said they always check that information. Few bother to contact other sources of information about complaints against sellers such as consumer agencies or Better Business Bureaus.

The most common problem for buyers is late delivery. Other problems they experience include receiving items that are different than promised, items arriving in damaged condition, and never getting the items at all. Sellers also report problems such as late payment, non-payment, buyers changing their minds, checks bouncing, and buyers using stolen credit cards.

“Whenever you pay in advance for something or ship an item before you’ve been paid, there is some risk,” Grant cautioned. One way to reduce the risk is to use credit cards for payment, as an increasing number of online auction buyers are doing. That enables sellers to get their money faster and avoid bad checks (stolen credit cards only accounted for one percent of sellers’ problems). Buyers can dispute the charges if the merchandise was misrepresented or never delivered. Even small-time sellers can arrange to receive credit card payment through programs offered on some auction sites.

Another option is to use an escrow service, which holds the buyer’s payment and forwards it to the seller when the buyer has received and approved the item by the agreed-upon time. Either buyer or seller can pay the small fee involved. Unfortunately, the survey showed that many people aren’t familiar with escrow services.