Catherine Reagor, real estate reporter for the Arizona Republic, must have taken the easy way out a few days ago and just published a press release as “news”. She “reported” on a “penny auction” for a home in Phoenix: [Thanks L!]
Penny auctions are popular for selling everything from gift cards to cars at discount prices. Now in metro Phoenix, a former foreclosure home is scheduled be auctioned off cent by cent.
Real-estate agent Todd Talbot plans to hold an online penny auction for a Glendale home next week. The house at 6214 W. Acoma Drive, Glendale, was purchased for $81,000 in January. Talbot said he spent an additional $20,000 fixing it up.
He said as with most penny auctions, the potential to make money is the charge for bidding. Bidders must pay 60 cents for every penny they up the bid on the home.
Talbot believes this is the first house in Arizona, and potentially in the country, to be auctioned off penny by penny. Bidders are allowed to bid only one cent at a time. So he and his partner have the potential to make money off the 60-cent fee per bid, if there are enough bids.
So what is a “penny auction”? According to Talbot’s website:
A penny auction is a unique type of auction that involves some risk to simply bid, in return for the possiblity of getting HUGE discounts. What that means is that it will cost you every time you bid (in this case $0.60) and you can only bid in one cent increments. So the risk is you pay $0.60 every time you bid but may not win the bid.
So why would anyone do this? Again, according to Talbot:
Assume property up for auction is worth $125,000. Bidder A purchases 1,000 bids at a cost of $600 (.60 per bid x 1,000 bids) with the thought that he will use those bids to bid on the property. The most that Bidder A is willing to pay for the property is $12,000. So it is worth it for Bidder A to risk $600 (to be able to bid 1,000 times) for the possibility to buy the property for $12,600 (his bid fees @ .60 each, PLUS the maximum final bid amount he determined)
Bidder A may win the bid with this scenairo because at this point in this type of auction, all the other bidders may not be willing to risk any more (by paying $0.60 for every bid) if the price is getting too high.
I have a couple of issues with Reagor’s reporting here. First, a quick Google search would have shown Reagor that this is not the first real estate penny auction in the country. [Granted, Talbot didn’t say absolutely that it was. Still, Reagor should have looked.] For example, here’s one in Florida: [As of last night at 11:00 p.m. their website was not loading.]
Not only have their been other penny auctions, but there have been issues with them. Here’s a discussion about another Penny Auction where several people considered the real estate penny auction a scam. It would have been nice if she had perhaps read a few articles like this MSNBC article entitled Most online penny auctions just don’t make any sense:
Go to any penny auction site and they’re packed with testimonials from happy customers. And indeed, some people will walk away with bargains. But the list of unhappy customers is growing.
So far this year, more than 1,000 people have complained to the Better Business Bureau about online penny auctions: delivery delays, poor customer service, misleading advertising and unauthorized charges.
“We feel consumers need to be extremely careful,” warns Becky Maier with the BBB of Pittsburgh.
Is it possible that this particular auction is all on the up and up? Sure, but this quote would make me nervous participating:
Since the bidding doesn’t involve gambling or any type of lottery, Talbot said his attorneys say it’s legal.
It might be legal, but when I can pay $600 and still end up with nothing, that seems like gambling to me. Sure, all investments are a “gamble”, but from what I can see, this type of bidding is a risky business. It would have been nice if Reagor had mentioned that.