There are several types of penny auctions, but the two most common are the forward auction where the selling price goes up one cent for each bid, and a reverse auction where the item starts at a certain price and moves downward until someone's willing to pay that price.
Shore says YouNeverLose differs from some penny auctions because bidders don't buy the points outright. They receive points as a bonus when they purchase gift cards for face value. For instance, a buyer who purchases a Trader Joe's gift card for $50 would receive 50 bidding points.
The buyer can then bid on the gift cards offered for sale on Shore's site, such as a $25 Starbucks card, which might go for 82 cents, for example. The winning bidder in this case bid 30 times and pays 30 points for the card. The other 52 cents or points come from the losing bidders, who have to pony up the points whether they win or not.
"I make my money by negotiating a discount with the gift card retailers," says Shore on how he turns a profit. But he cautions that it's nearly impossible to distinguish between a legitimate operation and one that's not. He says only auction sites that guarantee a dollar-for-dollar return are worth taking a second look. For example: A $50 investment yields a $50 gift card and 50 bidding points.
"You're risking money when you play on any penny-auction site. … If a penny-auction site involves risking your money, don't do it," he says.
The big boys
Paul Minshull has a theory as to why online auctions appeal so much to consumers. "I think it's the transparency, that you can do it from home," says the chief operating officer of one of the top auction houses in the country, Heritage Auctions.
Although Heritage Auctions is located in Dallas, it operates worldwide and many of its auctions make the news. The company offers high-end collectibles such as fine wine and art. This is where, for the right price, you could find a Monet painting or rare bottle of wine up for grabs.
But, says Minshull, large consignment auction houses like Heritage aren't outside the reach of the average guy. "We carry many interesting items that sell for less than $100," he says.
Unlike auctions that are mostly owner-driven, Heritage acts as a go-between and authenticator, which can be reassuring when determining the value or provenance of an item. Minshull offers the tale of one potential customer who brought in a baseball he believed to be signed by baseball great Joe DiMaggio. Heritage's expert told him it wasn't real.
"The guy said it was real because he was there when DiMaggio gave it to him, and our sports expert asked him if he actually saw DiMaggio sign it," Minshull says. The man admitted he had not, that DiMaggio had reached into a bag and pulled out a signed ball.
That, says Minshull, is what is known as a "clubhouse ball," a time-honored sports tradition.
"The players pay the clubhouse boy to sign (baseballs) for them," says Minshull.
Still, the authenticator role can work in the seller's favor, as a comic book collector's widow discovered. She almost sold her late husband's collection to a dealer for $25,000 simply so she could close out the storage unit where the comic books were kept. Instead, she struck pay dirt, making $3 million at a Heritage auction.
Whether you're a buyer or seller on the Internet auction scene, make sure you understand the rules of the game.