Are Online Penny Auctions Worth the Risk?

Penny auctions are taking the Internet by storm, but are they worth the risk?

As with any controversial question, you’ll find bargain hunters on both sides of the debate.

If you’re hearing about penny auction websites for the first time, here’s what you need to know:

In order to participate in a penny auction, you have to purchase bids. Bids can cost up to $1, depending on the site. Once you’ve added pre-purchased bids to your account, you can choose an auction you would like to participate in. Each auction starts at 1 cent. As time ticks down, users bid on the auction and the price increases by 1 cent. However, there are two details you need to remember.

1. Each bid adds time back onto the clock (usually 15 seconds).

2. Every time that you place a bid, you are spending $1 (remember, you paid for your bids up front)

If you happen to be the last person to place a bid when time expires, you win the auction. The winner often saves 75%-90% off retail.

If you think penny auctions sound too good to be true, you’re partially right. Remember, not everyone wins the item being auctioned. Only the person who placed the last bid wins and scores a great deal.

As you could imagine, that’s not a sustainable business model.

The more innovative penny auction websites realized that people don’t like losing on a regular basis, so they wisely added a Buy It Now option. This feature allows bidders who don’t win an auction to apply the money they already invested in bids toward purchasing the item at retail price.

In other words, sites with a Buy It Now option are giving users the chance to score an excellent deal – or, in the worse case scenario – pay retail price for an item they want.

That takes us back to the original question: Are penny auctions worth the risk?

If you asked that yourself that question three years ago, I think the simplest answer would be “No.” At that time, the Buy It Now option was almost non-existent.

However, the introduction of risk-free bidding makes this question more difficult to answer.

As a practical example, let’s pretend that you always fill up your car at a local Shell gas station. Instead of paying $25 to fill your tank, you could target a $25 Shell card on a penny auction website that offers a Buy It Now option. If you win the auction, you get a $25 gift card for significantly less than the retail price (I personally use this strategy, by the way). This means that you’ll save money on a gas purchase that you always make. If you don’t win the card, you can utilize the Buy It Now option and apply the value of your bids towards purchasing the card.

This scenario means that you’ll either save money or break even. For me, penny auctions that remove the risk factor are a no-brainer.

But that doesn’t mean that penny auctions are worth it for everyone.

Penny auctions take some skill and strategy to win, and new bidders have to do their homework in order to be successful. Newbies aren’t always willing to learn the ropes, and that leads many users to quickly dismiss penny auctions as scams. If you don’t have the time or energy to develop a strategy, then penny auctions aren’t worth the risk for you.

On the flipside, if you love scoring deals and don’t mind a healthy dose of competition, here are some simple tips to follow before you jump in with both feet.

1. Only bid on safe penny auction websites. As with any industry, there are fraudulent sites out there looking to take advantage of consumers. This penny auction directory only features sites that have proven their legitimacy. Start there.
2. As a newbie, only participate at sites with a Buy It Now option. This eliminates the risk element of penny auctions and ensures that you won’t lose your money. QuiBids, Beezid, and YouNeverLose are good sites for beginners.
3. Start by targeting small ticket items such as $10-$25 gift cards. Do not try to win an iPod or TV before you understand how the game works. Once you have a few smaller wins under your belt, work your way up to a big ticket item.

About the Author:

Josh is an experienced graphic designer and bargain hunter. In 2009, he founded the blog Penny Auction List to teach consumers about the risks and rewards of entertainment shopping. He enjoys helping people save money and make the best use of their time. Twitter: @pauctionlist

This is a guest post.  If you have questions, please post them in the comments below. For the next few days, I’ll try to respond to each question that’s posted.

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Written by Nichol

Nichol is a WAHM of two children, a son who is 9 and a daughter who is 5. She knows kids are expensive but shopping for them doesn’t have to be. That is why she features baby and kids deals and coupons for toys, clothing, baby gear and more. She enjoys giving her honest opinions on products and featuring new toys.

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