Learn how to spot and avoid penny auction websites.

By Susan Stellin
Updated September 30, 2011

The rip-off: Penny-auction websites lure you in by suggesting that you can bid relatively small amounts—say, $10—to win big-ticket items, like a flat-screen TV or an iPad. But there’s a big catch: Unlike eBay, these sites charge you to place a bid, typically 50 cents to $1. So participants who bid frequently can spend a fair amount of money yet come away empty-handed.

Plus, every time a bid is placed, the cost of the item increases by a penny or more—hence the name “penny auction”—and sometimes a few seconds are added to the auction clock, giving the site the opportunity to earn a bigger profit before the countdown ends. What’s more, some shady auctioneers enlist friends or use rigged software to drive up prices. “You don’t know if the people you’re bidding against are real or not,” says Jake Bernstein, an assistant attorney general for Washington State, whose office recently shut down a site called PennyBiddr for using fake bids. “The only clear winner in all this is the penny-auction house,” says Jeremy Gin, a cofounder of SiteJabber.com, which reviews online businesses and warns consumers about scams.

The tip-off: If you see an ad on Google or Facebook promoting a $2,000 Louis Vuitton handbag for $8, there’s a good chance it links to a penny-auction site, says Gin. And if you click on the ad and are asked to submit a bid (for pay), it’s also most likely you’ve hit one.

How to protect yourself: Consumer advocates suggest steering clear of these sites altogether. But if you want to try your luck anyway, mitigate your risk by first checking with your state attorney general’s office or consumer-protection office, to see if the company is the subject of any complaints or investigations.