Maybe you've seen the ads on the Internet, promising a Macbook $23.50, an iPhone for $5 or a $50 gift card for just pennies.
If it sounds too good to be true, welcome to the world of penny auctions. It isn't a scam, people actually win, but there are things you should know before you jump in.
Jonathan Mason from Frankenmuth is the proud owner of a brand new $35K Chevrolet Camaro, and you're not going to believe what he paid for it: $5.28. When he won, Mason says his wife didn't believe it either. "I said wake the baby up we just won this car, she made me show her on the Internet that it was my screen name that won."
Mason took advantage of a brand new website called fastpennycars.com. The owners of the website are here in Mid-Michigan, and this Camaro was its first-ever auction.
"We wanted to do something different, and there are no other websites selling new cars," said website founder Kent Kern.
Kern admits that the website took a huge loss on this first auction, but he's quick to point out selling the car for $5 earned them a ton of free publicity, which leads to new bidders. "It has helped, when the mustang goes up for sale on the 16th we are hoping it goes for more than the last one," Kern said.
Most of the well-known penny auction sites like Quibids, Beezid or Skoreit don't sell cars, they auction off gift cards, computers and other gadgets. On any penny auction site bidders have to sign up and buy bids. Bids generally cost anywhere from a dime to a dollar apiece.
Once they have bids, then the bidder chooses an item to try to win. Items for auction are on a timer, and the clock winds down to zero. Each bid adds time to the clock. In theory, the auction could go on forever, but since bids cost money, bidders drop out of the auction. The bidder who puts the final bid in before the clock hits zero wins the item.
Since bidders on penny auction websites must buy bids, the true cost to Jonathan Mason to get that car was more than $5.28. He says he used $40 worth of bids to win the auction. But when he picked up the car, he had to pay the final auction price of $5.28.
Not every bidder wins a car like Jonathan Mason. In most penny auctions, there is only one winner, and the rest lose their bids. It can be a fun and lucrative hobby, but people can and do lose money. Here are a few things to know before buying bids on a penny auction website:
1. Ask your friends, do a Google search and check out Facebook for reputable or recommended sites. Websites like these do go under, and you don't want to get ripped off. On the other hand, choosing a popular website means you are in competition against more bidders.
2. Read or watch the tutorial on how their auctions work. Learning the rules as you go along will cost you money. Watching the website without bidding can give you valuable information, like who to bid against and who to stay away from.
3. Choose a website that offers first-time or beginner auctions, you can work out your strategy against less competition. They are designed to give you a feel for things, and get a few wins under your belt.