Going Once, Going Twice: Online Auctions Mean Big Business for Some

by Maura Keller

You've heard of them--eBay, Yahoo, Amazon--auction sites where Uncle Ed posts his garage sale find du jour online, only to discover it's a lost Renoir. The number of people capitalizing on this alternative sales avenue--selling everything from stuffed animals to comic books to Madonna's childhood home--has increased exponentially.

As a result, auction sites have burgeoned into a lucrative business. Setting strategy, the ticking clock, and winning and losing impart a game quality to online auctions. But they're serious business, too. eBay moved $9.3 billion of merchandise in 2001 with sales expected to hit $746 billion by 2004, according to a Forrester Research report.

Before you pull out Grandma's pearls or Uncle Bob's favorite flyfishing lures with the thought of earning thousands, make sure selling at online auctions is right for you. We asked Home & Family Finance Resource Center readers for their feedback about Internet auctions. Here's what they had to say:

Why sell online?

Some online sellers use an Internet auction the way they would use a garage sale. It's a place to sell stuff they no longer want. Others are pros and use the sites as routes to make money for either a home-based business or for a company that can reach additional customers online. Whatever the reason, online auctions are fun. Unlike most in-person auctions, they typically stretch out over days and end at a specific time. When the clock strikes, the highest bidder wins.

Auctions offer a global market with many buyers and a good test market for what's hot and what's not. "Because auctions let buyers set the price they are willing to pay, you'll get instant feedback about the value and appeal of your item," says Kathy Maerz from Baraboo, Wis. Perhaps you want to test whether there's a market for your product, or maybe you're undecided about what to charge. Or you might just need a way to clear out the garage sale finds in your basement. If so, online auctions can help.

"I've been selling and buying off and on (online) since January 2002," says Arlene from California. "I enjoy it. Personally, I hate confrontation. Online, it's more relaxed. You deal when you want to deal." Arlene, who recently moved into a new house, is furnishing most of her rooms with items from eBay. "It's all in the hunt," she says. "I've found good, quality stuff that's going to be with me for a long, long time."

Online auctions also let you pick your own hours, set payment requirements, and tap in to a wider audience. "It is such an easy way to find the perfect niche for items," Maerz says. "There is virtually a buyer for everything. It's amazing what people are really interested in." Maerz, who has sold thousands of items on eBay, uses her eBay sales to supplement her family's income. She spends a few hours each day posting new items online, and tracking her existing items to be sold. "As soon as you're ready to sell, you can upload a picture and description and have your item ready for buyers within minutes."

Items for sale

So what kinds of things are people selling online? The most popular items for sale in the past had been collectibles, but lately noncollectible items such as computers, office supplies, and even houses have been auctioned online. Of course, you also can sell the wacky, from taxidermied bats to debris from shipwrecked luxury liners.

"I have sold everything from a tepee to an oil pump to telephone parts--many items that are difficult to sell at a garage sale will do much better on eBay," says Susan from Idaho.

"I frequently purchase books at half.com," says Greta from Wisconsin. "I decided that it was about time I got rid of some of the books I no longer needed, and have had great success on the same Web site I was buying from. It's not a lot of money, but it helps support my book habit."

James from North Carolina recently sold some music equipment via eBay and was very pleased at the success. "I was very happy with the transaction options. The buyer paid using a credit card and the money was automatically deposited into my checking account. I'll definitely use this resource in the future."

You usually can pay for auctioned items with a personal check, cashier's check, or money order, though many sellers ship only after a personal check has cleared. To be safe, check the "payment methods" section first; if the seller only accepts Paypal, for example, and you aren't registered, you'd be in trouble if you win the item.

"The only part that can be tricky is that no one wants to send you the money until they get their item, and you don't want to let go of the item until you get your money," explains Lorna from Montana.

"If you are willing to accept cashiers checks and money orders, don't send the item until you receive payment, and if they send a personal check wait at least 10 days before shipping," says Susan from Idaho. "Another great payment method is Paypal. Both the buyer and the seller have to be set up on Paypal but it is really slick, much faster than mailing payments. You can use Paypal to pay for anything as long as both parties have registered with PayPal. It is not as fast as credit cards, but if you don't want or can't use a credit or debit card, it is great."

Tricks of the trade

Before you sign up, read the auction site's terms of agreement and its policies and standards statement to determine what you can and can't sell, as well as the rates charged. In general, sellers pay a flat rate for posting an item, plus a percentage of the final sale. It's also a good idea to browse the areas of the site where your items will be auctioned, so you can get a sense of the process. Be sure to read the ratings and comments about other sellers and bidders.

"Remember, all transactions occur between you and the buyer/seller; the auction site is little more than an intermediary," Maerz says. "That means the responsibility of posting product information, answering inquiries, updating information, and all the paperwork associated with doing the sale is your responsibility."

Most Internet auctions require you to set a "minimum bid" for the item you are selling. The minimum bid is the price at which bidding for your item will start. Some auctions, like eBay and Amazon, charge a listing fee that's figured by the price you set as your minimum bid. The lower your minimum bid, the lower your listing fee. Of course, high minimum bids could discourage potential bidders. If you set your minimum bid at the current market value, bidders will stay away, figuring they will probably wind up paying too much for what you're selling.

"Always set the minimum price that you will accept. Otherwise, you could end up selling grandma's antiques for pennies," says Susan from Idaho. "Setting the minimum means you may not get it sold and you might have to try again later on, but it is better than

getting skunked!"

Setting a reserve price helps ensure you don't have to sell that sterling silver ladle for too little. A reserve price is the amount bids need to reach for the transaction to be valid. Of course, too high a reserve may mean your piece won't sell at all.

You can set your minimum at $0, and then set a reserve at $200. That way, you don't discourage bidders but a winning bidder won't get the item unless the high bid is $200 or more. If the bid is $199, it doesn't matter--you aren't obligated to sell the high bidder the item. And the only way bidders can find out the reserve is if the seller tells them or they manage to bid it.

When Cathy from Florida tried to sell a ceramic nativity scene, she didn't set a reserve price because she thought it would keep people from bidding.

"I began with a starting bid of $9.99. To my dismay, only one person bid on it, and only for $9.99." After spending nearly $20 in shipping and $5 in bubble wrap (which the buyer paid for), the buyer contacted Cathy nearly two months later stating the package arrived with every piece either chipped or cracked. "I had insured it, but had figured by then that it had arrived fine, so I threw away the insured receipt … many lessons learned on this one."

Fraud protection

Fraud protection is increasingly necessary in the Wild West of online auctions. The Internet Fraud Complaint Center, a service run by the National White Collar Crime Center and the FBI, receives more complaints about online auction fraud than anything else. "My husband recently placed a bid on eBay for MS Publisher," says Yanna from Arizona. "To his delight, an individual saw his bid and e-mail address on eBay, and contacted him directly to offer the same software at an even better price. How wonderful! My husband decided to take advantage of the offer and not pursue the bidding process through eBay. Well, a money order was sent and the software was never received. Someone got a great deal. Unfortunately, it wasn't my husband!"

Others advise that anyone thinking of giving online auctions a try should do their homework. "Search for current and closed auctions of items you wish to sell," says Sherrie from South Carolina. "Learn what works from the mistakes of others. Don't be afraid to have fun with it. And most important, figure out what your bottom line is so you can set your opening bid high enough to turn a small profit."

For more information on the art of buying and selling using online auctions, check out "Internet Auctions: A Guide for Buyers and Sellers," published by the Federal Trade Commission. You can access the guide online or call the FTC at 877-382-4357 to receive a free copy.

Published August 12, 2002

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