How Auctions Work

Internet auctions are bazaars. In most cases, sellers offer one item at a time, but sometimes sellers offer multiple lots of the same item. The auction web sites often refer to auctions of multiple items as "Dutch" or "English" auctions. At some sites, the seller may be required to sell all items at the price of the lowest successful bid. At other sites, the seller is entitled to the prices bid by each of the highest bidders. Occasionally, Internet auction sellers set a "reserve price," which is the lowest price they will accept for an item. Some sites disclose the reserve price during the auction. The bidding for each auction closes at a scheduled time, when the highest bidder "wins." In the case of sales of multiple lots, the participants with the highest bids at the close of the auction are obligated to buy the items. If no one bids at or above the reserve price, the auction closes without a "winner." At the close of a successful auction, the buyer and seller communicate - usually by e-mail - to arrange for payment and delivery of the goods.

Kinds of Auctions

Internet auctions can be business-to-person or person-to-person.

Operators of business-to-person auction sites have physical control of the merchandise being offered and accept payment for the goods. In person-to-person auctions, individual sellers or small businesses offer their items for auction directly to consumers. Generally, the seller — not the site — has physical possession of the merchandise. After the auction closes, the seller is responsible for dealing directly with the highest bidder to arrange for payment and delivery.

Payment Options

Buyers may have several payment options, including credit card, debit card, personal check, cashier's check, money order, cash on delivery and escrow services. However, all sellers do not accept all forms of payment.

Credit cards offer buyers the most consumer protections, including the right to seek a credit from the credit card issuer if the product is not delivered or if the product received isn't the product ordered. Typically, sellers using business-to-person auction sites accept payment by credit card. But many sellers in person-to-person auctions don't. Usually they require payment by cashier's check or money order before they send the item to the winning bidder.

Some sellers agree to use an escrow service. For a fee — generally 5 percent of the cost of the item, paid by the buyer — an escrow service accepts payment from the buyer via check, money order or credit card. The service releases the money to the seller only after the buyer receives and approves the merchandise. This helps protect buyers from ending up empty-handed after paying their money. The flip side? Using an escrow service can delay the deal. As with any business transaction, investigate the escrow service's reputation before signing on to the service.

Occasionally, sellers agree to send items COD, with the buyer paying when the item is received.

Consumer Concerns

According to the Federal Trade Commission, Internet auction fraud has become a significant problem. Most consumer complaints center on sellers who: