Experts caution 'bidder beware' with penny auctions

TUCSON, AZ (KOLD) - It's shocking to see the going rate of items sold to the highest bidder on penny auction web sites.

There are digital cameras for $25, high-end computers for $200, and $25 gift cards going for pennies.

Terrie Lee checked out one of the sites and couldn't believe what she saw.

"These people were winning $2,000 TVs for $200," she said. "It was incredible."

On these types of websites, each time you bid on an item, you're charged for that bid. You're in a bidding war against other users as a clock ticks away the time remaining on the auction.

Once time runs out, the winning bidder must pay the final auction price of the item, on top of the money they've already spent on bids.

The losing bidders have lost any money they spent on bids.

"In the beginning, I was winning. So I tried for a Kindle that I've wanted," Lee said. "I tried three times. The first time, I was just learning how to do it. The second time, I ran out of bids. So I tried a third time and lost again."

In the end, when she counted all of the money she spent bidding, she figured she would have saved money if she simply went to a store and purchased a Kindle.

Jeremy Gin runs SiteJabber.com, which has a federal grant to investigate online businesses. He says these sites started popping up about 18 months ago.

"Over time, we have had thousands of people who have written negative, scathing reviews of these penny auction sites," Gin said.

He claims the potential for fraud is significant. Some sites have been accused of hiring people to bid against users, and even using computer programs to bid against users.

If you look closely, you'll find that some of the sites aren't trying to hide their money-making motivation.

In the lengthy terms and conditions spelled out by DealDash.com, for example, it clearly states that you are likely to spend more money than you'll ever get back in products.

"People should treat these websites like a trip to Las Vegas," Gin said. "It's gambling."

The Better Business Bureau has about penny auction web sites:

http://www.bbb.org/us/post/online-penny-auctions-friend-or-foe-7541