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The cost of ... online auctions

The cost of online auctionsTired of trying to convince the cat to honor the no-fly zone you've set up around that vase of blown-glass flowers? You know -- the one you never liked anyway?

Well, we suspect you are bonded to the cantankerous old cat, so may we suggest you unload that fragile bit of frippery in an online auction?

There's no shortage of places to ditch your unwanted vase and to buy an indestructible replacement. More than 200 auction sites have set up shop on the Web, according to Auction Patrol, a portal for online auctions. Some are specialty exchanges that deal in only one type of merchandise. Others -- including the well-known trio eBay, Amazon.com and Yahoo! -- are generalists.

But whether you are buying or selling, how do you make sure you get the best deal?

Escrow services
The worst deals of all come when you pay for something you never receive or ship an item just before the buyer's check bounces.

An escrow service can help prevent such mishaps by acting as a middleman. Escrow.com, for instance, receives payment from the buyer, waits for the buyer to notify the company that the merchandise has arrived and then pays the seller.

The buyer must approve the merchandise or return it within a set inspection period. If that period ends with no word from the buyer, Escrow.com automatically pays the seller.

AuctionWatch, however, advises buyers to refrain from using an escrow service for purchases of less than $75 because using such a service sets some sellers' teeth on edge. It makes the transaction more difficult for them by adding an extra layer.

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Payment services
Amazon.com, Yahoo! and eBay all offer payment services designed to allow money to glide smoothly between sellers and buyers. And there is an independent company that can also help.

Yahoo!'s PayDirect system allows buyers and sellers to set up online accounts to receive money. Buyers can feed their accounts with draws from credit cards. Then, when they buy items at auction, the payments are deducted from the account and transferred to the seller's account. The seller never sees the buyer's credit card number and can transfer the cash to his own credit card or checking account. The service is free to all parties.

Amazon.com's Payments takes the form of charges to your credit card. There is no fee to a buyer who uses the system, but a seller pays a fee.

eBay owns PayPal uses the company to handle online payments -- either credit card or electronic check payments. It is free to send and receive money using a PayPal personal account but they do charge fees for their Premier and Business members to receive payments.

PayPal.com actually pays you to use its service if you are a buyer: $5 for signing up and another $5 for each friend referred as a buyer.

It may also be worth your while to use an online payment site to process credit card payments, despite the fees such sites charge, because bidders tend to spend more when they can charge a purchase than when they have to surrender cash, says Dennis Prince, author of AuctionWatch.com's Official Guide to Online Buying and Selling and a contributor to the site.

Buyer beware
If you're shopping, make sure you know the fair value of the item you are looking for. It just might keep you from paying an arm and a leg for something worth no more than a toe.

Shop around at online auction sites before placing any bids in order to get a good idea of the going price for your item. If you are having trouble finding the fair price of a collectable, you might be able to find it through Collectorbooks.com.

Prince tells Auction Watch readers to avoid getting so caught up in the adrenaline rush of competitive bidding that they pay more than an item is worth.

Set a maximum on the amount you are willing to pay and stick to it. It's OK to lose -- especially if winning is going to cost you too much money.

Make sure the shipping terms are fair. If the price of shipping is not spelled out in the offering, contact the seller and get the specifics. Be wary of any seller who sounds like he might be padding shipping costs or setting you up to absorb exorbitant "handling" costs in order to compensate himself for a low asking price.

Before you close the deal, consider insuring your purchase against seller fraud and shipping damage. Some auction sites offer limited insurance, as do some shippers, and you can purchase supplemental insurance from third parties, including U-Pic.com and WebTradeInsure.com, according to Auction Watch.

Don't depend on a seller who claims he self-insures, Auction Watch warns.

Supplemental insurance comes in handy under two circumstances:

  • When coverage limits imposed by auction sites and shippers are less than the value of the item being shipped
  • When you found a steal of a deal. It can be purchased to cover an appraised value -- even if that is more than the invoice price.

The insurance you choose is in large part dependent on your tolerance for risk. After all, a large part of what you are buying is peace of mind.

Seller be wise
There are a few sites that don't charge seller fees, and they typically have less traffic on them than the larger, fee-charging sites, Prince advises. So expect to pay a listing fee before you advertise your merchandise.

But Prince says a number of other fees can be avoided including those for title enhancements and special icons that add eye candy to your ad but seem to do little to draw bidders. Instead, he advises careful selection of keywords, the search words that bidders use when they are trying to find specific items.

Yahoo! allows you to improve the placement of your item on an auction list -- for a fee. So will Amazon.com and eBay.

If you want to make sure you get a minimum amount for the item you are trying to sell, consider placing a reserve price on your merchandise. eBay explains it this way: the bidder knows there is a minimum price but does not know what it is; if the minimum is not met during the bidding the high bidder does not acquire the goods. eBay extracts a Reserve Price Auction Fee from sellers who want to place a floor under the sale price.

Sample pricing information for online auction sellers
Inclusion in this list is not meant to endorse any particular auction site, but simply to give consumers an idea of availability and costs. The prices, culled from the sites, can change at any time.
eBay
Insertion fee: 30 cents to $3.30 (depending on minimum bid, opening value or reserve price)
Insertion featured on home page: $99.95 (one item)
$199.95 (two or more items)*
Reserve price: 50 cents to $1, additional (depending on amount of reserve price)
Final value: At least 5.25 percent of the final sale price, depending on the price
Payments system -- PayPal: Free to open an account. Personal account holders can send and receive money for free -- for U.S. bank accounts. Premier/Business account holders can send money for free but are charged a minimum of 2.2 percent plus additional charges to receive funds.
Featured in search list: $19.95
* Price changes will take effect on March 4, 2003.
 
Yahoo!
Listing: 50 to 75 cents (depending on starting or reserve price)
Reserve price: 40 to 75 cents additional
Icon: 50 cents
Closing: 2 percent plus up to 1.5 percent additional depending on the final price value
Payments system -- Pay Direct: no fee
Featured placement: at least 10 cents per day; but the more you spend, the higher your position on the list
 
Amazon.com
Listing: 99 cents
Closing: 15 percent of the sales price (10 percent for Electronics and Camera & Photo items)
Payments system: Amazon.com processes payment from the buyer and deposits it in the seller's account.
Editor's note: Each auction site uses different terms to describe fees. Yahoo! and Amazon.com call their fee to list an item Listing fees, while eBay refers to listing fees as Insertion fees. The fee for the final sale is called a Final value fee at eBay, and it's referred to as a Closing fee at Amazon.com.

 

--Updated: Feb. 18, 2003

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See Also
Protect yourself in online auctions
Selling your stuff in an online auction
Arm yourself with information before bidding online
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