Hidden costs of online auctions

Hidden costs of online auctions

Buying goods at an online auction nowadays is very convenient, exciting, and secure. Whether we talk about machinery auctions, truck auctions, or antique options, we refer to a vastly growing business that tens of thousands of people around the globe make a full-time living on. Unfortunately, competition is becoming a battle field which scam artists benefit from. For the purpose of this article, we will be expanding on three major hidden costs of an online auction that very few people are aware of: seller verification, shilling, and shipping estimate.

Seller verification is not free

First of all, seller verification is what makes an online auction site reliable or not in the eyes of a prospective buyer. Without seller verification, you, a potential buyer, would be very reluctant registering for an account or providing personal information. Seller verification is usually done by third party research company that are, obviously, not working for free. Sellers, on the other hand, would not agree to a verification fee without having some kind of assurance that their merchandise will be sold at a reasonable price. As a result, at this early stage of an auction, the auction manager is faced with the obvious situation: pay the verification fee from its own pocket or just hide it and reveal it later to the buyer after the item was sold. Most auctions would just hide the fee and refer to it as a deposit fee; however, since competition among auctioneers is fierce, some have decided to further hide this cost by involving more third parties that are, again, not performing work for free.

Shilling services markup

Second, we will be discussing about how shilling came by and why we see it as a direct result of seller verification. Shilling is the art of artificially inflating the price of an item by use of fake bids from phony users IDs or accomplices. Since the auctioneer has most likely paid the verification process from its own pocket, it will now need to get that money back. The only way this can be accomplished is if the item sells at a price that now has to satisfy the seller, covers the seller verification fee, covers the auctioneer’s markup, and also covers the costs for either a human being actually making the fake bids or the automated software doing that. So, let’s take for example a forklift auction: the seller wants $2,000 for it, auctioneer pays $50 to get this seller verified (not the item), the auctioneer pays in a way or another for shilling services another $50, and has a markup of 10%, which is another $200. Bottom line is that buyer has to pay $2,300 for the item otherwise the sale will not happen. In an ideal world, if a seller wants $2,000 for an item and the buyer comes close, there is a very high probability that the forklift will sell at $1,800 – $1,900. So far, we are talking about some hidden fees, but they are not as dramatic as the last one to come.

Hidden costs in shipping

Lastly, after money exchanged some hands, item is sold, the real hidden cost kicks in: shipping of the item. Right after full payment, you would probably get a receipt which states that the item should be removed in a certain number of days otherwise storage fees kick in. Normally, items are to be removed within 5-10 business days and the storage fees are usually about $30-$50 / day after that period. Most likely, upon payment, you will receive an email from the auctioneer recommending you certain shipping services, shipping estimate, shipping quote, shipping rate, and the list can go on. At this moment, as a buyer, you would feel very pressured to remove the item as soon as possible in order to avoid the storage fees. If you have done your homework prior to bidding and you send in dry van trailer, a flatbed trailer or a step-deck trailer, the next day or the day after, you should be good and you will not be seen as prey; however, if you haven’t done some research regarding auction shipping prior to bidding, you will most likely pay twice as much. You will basically embark in a vicious circle and in the end you need to pay the whole bill to get out of it. The more people get involved, the larger the freight bill will be.

Online auctions can be very rewarding if enough research and caution is applied to the whole process. Our advice is not to take everything for granted. Every time you will see the word “free”, there is a very high chance that the cost of making a service free is hidden further down the road. Seller verification, shilling, and shipping wars are all made to distract you from reality and make you dive deep into your pocket. We recommend you to make a budget prior to buying something and respect it to a teeth. Please follow our future articles in order to get insights and developments into this growing industry which is online auctions.