Bidder Beware: Avoid Auction Scams

April 6, 2009 — -- I did a story last week for "Good Morning America" about grocery auctions. And I'm heading out this week to shoot another auction story, this time about people who are making some cash in this tough economy by selling unneeded belongings at auctions. The two topics reminded me that there are some tips and tricks -- and warnings -- I can share about shopping at auctions. So here goes.

There's something about an auction that gets people's blood flowing. Gets their cash flowing, too. People part with thousands of dollars because they feel like they've "won" something rather than "bought" something. They often overpay. You can bid your way to a bargain at an auction, as long as you remember an old warning with a new twist: bidder beware.

First, let me tell you about government auctions, almost a form of legal revenge. The government busts bad guys and then sells their belongings to make money for law enforcement. I covered a government auction once and was dazzled by the dizzying array of merchandise. Luxury cars. Diamonds. Gold bars. Persian rugs. Golf clubs. Ramen noodles. Yes, several tons of ramen noodles. If the government seizes it, the government can sell it. And you can buy it. Contrary to legend, you won't find a sports car for 50 bucks or a vacation home for $500. Government auctioneers set minimums and withdraw items from the auction if they fail to fetch a reasonable price.

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The feds publish lists of government sales and auctions for free or for a small charge to cover postage. If you'd like to find out about government auctions, go to www.pueblo.gsa.gov and click on "Federal Programs." There are several brochures you can print out about government auctions. The Treasury Department holds auctions every nine weeks. For information on those, call (703) 273-7373 or go to www.ustreas.gov.

Be aware that opportunists will try to sell you information about government auctions that you can get yourself for free. The scam works like this. You see an ad about government auctions or other glamorous auctions. You call the number. The operator asks you for your credit card or checking account number. The company charges you $50 to $75 for a list of auctions. Maybe the operator offers to "throw in" a couple extra auction books. You end up being charged for those as well.

Beware Fake Government Auctions

Government auctions are so popular that copycats try to make their auctions seem like government auctions to lure customers. This is just one of many sleazy tactics used by travelling auctions held in hotel rooms and other rotating sites. Travelling auctions usually advertise in newspapers or send out direct mail. Beware of ads with statements like this: "AUCTION of goods previously held, sold and released by GOVERNMENT AGENCIES and POLICE DEPARTMENTS!" Unschooled readers may miss the fine print and mistake this for a government auction. It's a ploy. All it means is that the travelling auctioneer himself attended a government auction and bought one or two things that he's now going to try to re-sell at a huge mark up. That's if he attended a government auction at all.

Fake estate sales are the other favorite ploy of travelling auctions. The auctioneers persuade real estate agents to let them hold auctions on the grounds of mansions that are for sale. They imply that the merchandise for sale has a connection to the grand house, when really it's just cut-rate crap trucked in for the auction. I went undercover to one such sale where the auctioneer was selling off "the entire state of Dr. Percy, leading figure in sports medicine." I asked the auctioneer whether it was the estate of the Dr. Percy, a professor at a nearby university. He said yes. So I called Prof. Percy, who was very much alive and startled to hear his name was being used to sell art and antiques. He laughed, and said he didn't know much about either one.

I attended another travelling auction where there were fake bidders planted in the audience. These shills repeatedly bid up the prices so the real customers would end up paying more. How do I know? It was right in the auction contract, only they were called "house bidders." The contract said the auctioneer reserved the right to employ house bidders to assure that he made a certain amount of money on each item. Customers had to sign the contract to get a bidder card, but apparently I was the only one who actually read it. Shills are illegal in some states. But many states don't regulate auctions or auctioneers at all.

That 'Bargain' Could Be Bogus

These schemes seem pretty transparent, but they work. I attended one travelling auction in which the auctioneer raked in $93,000 in a single hour. The auctioneer claimed one diamond ring was excellent quality and worth $15,000. A man in the audience bought it for his wife for $7,500. I approached him and offered to get the ring appraised for him. The appraiser said the ring was poorly cut, yellowish in color and had imperfections so bad they were visible to the naked eye. The value? Just $6,500, a thousand less than the man paid. This particular customer was so caught up in the auction that he also bought five oriental rugs, some furniture and a painting. His grand total? $20,000. The poor guy actually planned to delay his retirement to pay for the purchases.

Another travelling auction advertised "original signed Chagall lithographs." Again, I had one appraised. The piece turned out to be a fancy color copy. With the help of a magnifying glass, you could see the cheap dot matrix printing. And get this: It wasn't a Chagall. It wasn't even a copy of a Chagall. It was a composite of images from other Chagall works. So, if you raise your hand at a travelling auction, make sure your "bargain" doesn't turn out to be bogus.

Do Your Homework:

The reputation of the auction house is crucial. Call the Better Business Bureau and your county and state consumer protection offices to do a background check. If your state licenses auctioneers, find out which department is in charge and call and ask questions.

Even if the auctioneer comes up clean, be wary if the auction is being held at a hotel or some other non-permanent location. How will you track the company down if you have a dispute?

If you hear about a government auction third-hand, contact the government agency directly to confirm that it really is holding an auction.

Call ahead and get a copy of the auction rules in advance so you'll know how to proceed on the big day.

Try to find out what is being auctioned and research the value before you attend the auction. Set a limit on what you're willing to spend based on the actual value.

Figure out in advance how you plan to pay for items you buy at auction, especially if you're in the market for a big-ticket item.

More Homework

Make plans for how you will get your merchandise home. Some auctions require you to take your purchases right away. Others make you wait three or four days.

Attend auction previews to examine the merchandise. Take an expert with you, if possible. Be wary of auctions that don't hold previews.

Where to Complain:

If your state licenses auctioneers, complain to the department that handles licensing. If not, contact your county and state consumer protection offices and the Better Business Bureau.