As the internet becomes a ubiquitous information tool around the world, we all benefit with the ability to find what we want and the way we want it.

The internet has also created many services that make it easier for companies to easily bring products to market at prices we like, but this low cost of entry and information overload also makes it easy for companies to find ways to scam us.  More specifically, a number of scamming auction sites have popped up with offers too good to be true.

How to Spot a Scam

If you are viewing a financial article or maybe researching your next big purchase, you may see an ad for something amazing like an iPad for $25 or a new car for $500.  Obviously the ad is trying to catch your attention and suck you in, but remember this first rule to not get caught.

• If a deal appears too good to be true, then it is.  The ad below includes this along with a picture of a french reporter unaware her face is being used to sell scams.

Now, if you are just really curious and you want to see how someone could even consider offering the iPad for $25 and you click the ad, you will still see some scam indicators.  At the scam site memphisgazette.com (warning scam site), you will notice a few things that may seem odd.

First, all the buttons at the top are not actual links, the “Breaking News” is a saving trick (not something a little more breaking like a massive hurricane, a world war, or asteroid colliding with Earth), and my personal favorite, all the comments are extremely positive.  Any news site will have more negative comments than positive ones.

• A fake news site may have fake links, overly positive comments, or a dramatized headline.
• This does not give a product credibility.

But even if the news site is fake, it may be a legit ad. So you click a link and head over to swipebids.com.  This site along with some other scamming auction sites try real hard to take your money, but again, just resist it.

Why? First, depending on the links you clicked to get there, you may see some interesting reasons why they can offer these products at such a low price. For example, they may say a warehouse is overstocked and they don’t know what to do. Also, you will eventually find out that you have to sign up to really get anywhere and signing up requires a credit card. Since the site is a scam, they hide in fine print that you get charged $150 for signing up. Sure you can try and sue them for your money back, but that will take a lot of time and more money just to get them in trouble. Just say no.

• There is no way to justify a $25 (or even $125) iPad unless it’s a scam.
• Don’t give your credit card to a site if you are concerned it’s a scam.
• Better yet, ask someone you trust if they have used the site or send me a question when you’re not sure.

How Scamming Auction Sites Work

Now, truth be told, the auction sites do have some deals on them and there’s a slight chance you get one. Understanding how they work, though, should convince you it’s not worth the effort.

For these “auctions”, each person buys a set of bids (e.g. 100 bids for $50) and places those bids on the product. Each time a set of 100 bids is placed, the winning price increases by a few cents, and after a set amount of time, the auction ends. So for a $25 iPad, there may have been 2000 bid sets placed.  Each one cost $50 for a total of $100,000. The winner (in a lucky scenario) put down $50 and then pays $25 for the ipad – a great deal, but everyone else lost out big.

What should this remind you of? This is very similar to the lottery or other forms of gambling. In this example, the average person pays $50 for a 1/2000 chance at winning a $500 iPad.  These are odds you should always avoid.

• Avoid SwipeBids (scam!) and QuiBids (scam!) at all costs!

Have any experiences with scam auction sites? Let others know in the comments or check out these links for actual bad experiences.
http://www.sitejabber.com/reviews/www.swipebids.com
http://bloggerboon.com/2010/06/23/how-swipe-bids-scam-works/

This post is featured in the Carnival of Personal Finance at Budgeting in the Fun Stuff.

(photo from bloggerboon.com)