Are Penny Auctions Legitimate? 10 Reasons to Stay Away

penny auctions scam

A penny auction is an auction where the participants pay a non-refundable fee to place small bids on certain items. Each bid gradually increases the price of an item by a certain amount – in this case, by $0.01 – and extends the time of the auction by a few seconds. The bids are placed in small increments and the final auction price is usually significantly lower than the retail price. While penny auctions may seem like a great way to bid for expensive items at low prices, there are some major pitfalls associated with these types of auctions. Here are a few reasons why you might want to use your pennies in other ways rather than on penny auctions:

You Lose Money Even If You Don’t Win

In traditional auctions, whether in person or online, you don’t typically have to pay the amount you bid when you lose the auction. However, penny auctions are different. No matter what amount you bid, you’ll end up losing that money even if you don’t win the auction. This is a pretty big pitfall regardless of whether you end up losing $1 or $100.

Shill Bidding

Shill bidding is the practice of driving up auction prices by placing fake bids in the hopes of provoking a bidding war. Often, someone selling an item will create multiple accounts and bid on their own product or have friends and family members place fake bids to drive up the value and price of the item they are trying to sell. Shill bidding happens quite often in online auctions and it’s become a serious problem for many penny auction websites.

Automatic Bidding Features

Some penny auction sites also have a problem with software bids. These are bids that are placed by a bot and not a human bidder, therefore driving up the price of the item and extending the length of the auction. These automatic bidding bots are sometimes used by people engaging in shill bidding and sometimes by people who just want someone to automatically bid on their behalf when they’re away from their computers. If you’ve ever participated in an online auction and seen a new bid placed a mere second after your bid was placed, it was most definitely done by some type of automatic bidding software.


Most penny auction sites have bidders use “credits” to bid on items up for auction. However, in order to gain these credits, you have to buy them from the website. Depending on the website, one credit can cost anywhere from $0.25 to $1.00, which means that every $0.01 bid you place on an item is actually putting you back anywhere from a quarter to a dollar.

Similarity to Gambling

Many people compare penny auctions to gambling with the chances of winning an auction being about the same as the chance of winning the jackpot on a casino slot machine. Because of issues with shill bidding and automatic bidding bots, many people feel as though there’s a very small possibility of them ever winning an auction. Considering that bidders lose the money they bid each time into every auction they lose, this is a pretty valid concern.

Retail Prices

A lot of penny auction sites are also guilty of listing items at full retail price when the same item is rarely sold at full retail price. A good example are cars. By always placing prices on items that are higher than they can be bought at most retail outlets, they make them items seem worth more than they are which can drive up the bidding. If you’re definitely interested in participating in penny auctions, you should do your homework on the retail price of the items up for auction, and not assume the one posted by the auction is accurate

Time Consuming

Many penny auctions have a short time-frame in which you can bid on an item. Furthermore, some sites stop the auction if more than twenty seconds go by without a new bid. All of this means that you have to be extra vigilant about when auctions begin and end, as well as when you place your bid. If you wait too long, you may not only lose the chance to get another bid in, but you may also lose the auction. Unless you have a ton of time to spare to bid on items, penny auctions may not be your best choice.


The Better Business Bureau has a huge collection of complaints lodged against various penny auction websites. Several of these complaints have to do with unauthorized fees being charged to user accounts. A lot of these fees are hidden in fine print when you first sign up, so be careful that you read all the information available before signing up with a penny auction website.

Unauthorized Charges

Similar to the issue concerning unauthorized fees, several penny auction websites have been guilty of overcharging customer accounts. For instance, someone may end up winning an auction for $10 and be charged $30 instead. This even occurs on a smaller scale, with an extra dollar or two being charged to your account. If you do go ahead and use a penny auction site, it’s a good idea to make sure that all your charges show up correctly.


Penny auctions are an easy target for many scammers. Some penny auction scams ask you to sign up for a free trial, but require you to give them all your personal and financial information. Some sites never ship any of your auction wins to you, and some even charge you an additional fee just to receive them. Before you sign up for any penny auction site, make sure you check online to see whether it’s legitimate or a scam site.

This entry was posted in Personal Finance, Shopping and tagged , , , , . Bookmark the permalink.

One Response to Are Penny Auctions Legitimate? 10 Reasons to Stay Away

  1. Chad E says:

    Looking to save? Buy used. So many people buy new technology and then end up reselling it on ebay or local classifieds for super cheap. New IPhone? Spent $100.

Leave a Reply

Your email address will not be published. Required fields are marked *