Online Auctions
Since their beginning in the mid 1990s, online auctions have grown to be one of the most popular aspects of the Internet. They offer an easy, efficient and cost-efficient way to buy and sell goods – from cars to computers, appliances and even real estate. People can anonymously browse, and bid on a huge, varied and constantly growing selection of items for sale.
Online auctions have become very popular with New Zealanders. The first local internet auction site went live in 1999 – today it has 390,000 listings, with over 1 million New Zealand members. It’s estimated by the end of 2005 the annual rate of auctions being undertaken by New Zealanders will exceed 35 million a year.
As with any internet transaction, there are some risks associated with auctions. By understanding the potential issues and ways to manage them, these problems can be avoided.
The Auction Process
Online auctions provide an arena for the display of items, facilitate the sale of such items and enable communication between the buyer and seller. The auction site does not handle the merchandise, nor arrange payment or shipping, though good sites normally offer some sort of escrow service to safeguard larger transactions.
In order to participate in online auctions, people have to register, get a ‘user name’ and read and agree to the terms and conditions of the auction site. People just wanting to buy are normally not required to deposit any funds to the hosts of the site. Sellers are required to open a prepaid account with the auction site for possible fees accrued in a transaction.
The real bonus for sellers is that they only incur selling fees if the item actually sells. By contrast a newspaper advertisement incurs a fee whether or not the item is sold.
To maintain and promote trust and safety amongst users, auction websites encourage participation in visible feedback on how others were to deal with. This feedback becomes a permanent part of the user’s record and can be reviewed by others before any potential dealings. This means that a potential buyer is able to review previous trades a seller has been involved in along with the other party’s opinion of that trade.
Payment
The exchange of goods and money is arranged and agreed on by the buyer and seller via email after the auction is closed. Payment is usually made by direct deposit or cheque and it is standard practice for the seller to receive payment before sending the goods.
Auction websites normally offer payment services to provide a less direct but safer way to conduct exchanges of goods and money. These normally take the form of an escrow service where an independent third party receives the fund from the buyers and holds the money until the buyer has confirmed that the goods have arrived. Because a fee is charged for the service, most traders tend to use it only for higher value items (i.e. over $200).
Protecting yourself against internet auction fraud
Despite the various protections provided by auction websites, like any market place, fraud can occur. Key types of online fraud include:
- Failure to pay or send merchandise at all or in the agreed time
- Failure to give all relevant information about item or to describe it fairly
- Failure to abide by terms and conditions of the site
- Facetious bidding
Despite these potential problems, online auctions can be made in relative safety by using the right combination of the tools provided by online auction sites together with common sense.
1. Make sure you are using a reputable auction site. Indicators of a reputable site include:
- number of items listed – sites only get big if they provide a safe environment.
- Customer service tools – a good site will provide both telephone and email customer service, and will normally respond to queries within 48 hours. They also normally provide an ability to report any suspicious auctions.
- Evidence of protection – this includes detailed terms and conditions, a detailed privacy policy, information about on-site protection.Association with compliance agencies – a reputable online auction site will demonstrate their commitment to trust and safety through associations with enforcement agencies like Police, Customs, IRD and Consumers’ Institute.
2. Scrutinise the seller.
- Take a look at his/her feedback rating and the types of things they have been buying. Are they new? If so, be careful. If they have had negative feedback, take a look at it and see if it sounds substantive. If it does sound substantive, do not trade with that person. As a general rule of thumb, you should avoid trading with people who have had more than two percent negative feedback.
- Check out if the person is authenticated or address verified. Common sense suggests that it makes more sense to deal with someone in New Zealand whose address has been verified.
3. Take a closer look at the item being sold. Is it too good to be true? Does the description or the vendor sound odd? Are they rude or elusive in their responses? If the answer to any of these is yes, then you should avoid their auction and consider reporting them to the site.
4. Avoid leaving the Auction site to bid on items. If a seller asks you to negotiate a sale off the auction site, do not do it. In this situation, not only have you and the seller breached your contracts with the auction site, but you will have no protection should something go wrong with the sale.
5. Once the auction has closed, email the seller and ask for their phone and address details. If you have any doubts, you are then able to verify their details via the telephone book.
6. Never send cash or Western Union style wire services. Use internet banking, cheque or money order – all of which can be tracked. If the item is of higher value, use the escrow service or consider having the item collected in person.
7. If at any stage during the process you feel uneasy then do not continue the transaction.
8. If you are the seller, then make sure that the payment arrives and clears in your account before you send the item.
What’s Normal?
For new traders it’s often hard work to work out what is normal and what isn’t during the online auction process. The following is a ‘typical’ transaction process.
Day 1 – the auction successfully closes with the winning bid above the reserve. The site automatically gives the buyer and seller each other’s emails.
Day 2 – the two parties connect via email. The seller advises his/her bank account details or address and the postage inclusive price. The buyer agrees to make payment.
Day 4 – the seller receives payment (typically cheque or internet banking) and shows as cleared funds. At this stage s/he sends the buyer a courteous email confirming receipt of payment and agreeing to post the item.
Day 5 – the seller packages and posts the item
Day 6 – the buyer receives the item and sends the seller a confirming email. This effectively concludes the process.
Day 7 – both buyer and seller place feedback on each other on the site.
While the above may be typical, there is a range of what is normal, which can be impacted by weekends and holidays. Some sellers may be very experienced and run a very efficient receipt and postage service, reducing time. Others can have constraints around jobs and family and may take a bit longer to fulfill the transaction. Most auctions are fulfilled within 10 days of closing.
A key component is communication and you should look for this in a trader’s feedback history. A delay of a couple of days is unlikely to worry a buyer if they have had an email alerting them. Conversely, silence together with a delay will cause concern.
What can I do if a party does not fulfill the trade?
- Contact the seller/buyer directly. Make them aware of your concerns and find out when they will fulfill the transaction. Make it clear that unless they deliver you will notify the site and post negative feedback.
- Advise the auction site. Most auction sites will have an automated refund process where you can have any fees refunded and the auction site will contact the other party. The auction site then has the ability to disable any fraudulent users and report him/her to the authorities. Typically you need to do this within three weeks of the end of an auction.
- Post negative feedback detailing exactly what happened and why it was a bad experience. Doing this will effectively blacklist the trader to most other traders.
- Approach the Police with details of the trade. It’s in the auction site’s interests to work with Police to identify and discipline any dodgy traders.
- Take the person to the Disputes Tribunal. Again an auction site is normally keen to assist in this process and can provide the other parties details if contacted by the Tribunal or Police. This is another good reason for choosing to do business only with those residing in New Zealand.
More information
NetSafe would like to thank Mike O’Donnell from Trade Me for his assistance in writing this material
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