Electronics

Auctions online

Updated 05 Nov 2009

Introduction

Our guide to how online auctions work, your rights, and advice for buyers and sellers.

Online auctions can be fun, addictive, and there are genuine bargains to be found. But you need to be familiar with the rules, and wary of the traps.

We explain what you need to know.

How does it work?

The process is essentially the same regardless of the website you use.

Before you can buy or sell, you need to register online (this takes about two minutes).

To sell

First you list the item with the trading website, posting a picture of it and specifying the minimum price you will accept - the reserve. A number of sites allow you to sell at a fixed price - in such cases you may be charged a listing fee.

Buyers then place their bids. At the close of the auction, if the reserve has been met, the highest bidder becomes the purchaser. They are sent your contact details and vice versa, and you get in touch with each other to arrange payment and delivery.

To buy

You visit the site and enter the item you are looking for in the search engine. Alternatively, you can just browse the different categories.

Is it safe?

Only a tiny fraction of online auctions turn sour, but it's better to be safe than sorry. Most sites offer an "escrow" service. This is where a trusted third party holds money on behalf of the buyer and seller whilst the transaction is in progress. The buyer pays money into the escrow trust account.

That money is not released to the seller until the goods arrive and (perhaps more importantly) it's clear they match the description given. There is a charge to use an escrow service. Whether this charge will be shared or paid by the buyer is usually indicated in the blurb placed by the seller. See SafeTrader for New Zealand services, or Escrow.com for international services.

Your rights

Online auctions and the law

It's a muddy area. Goods bought at auction or competitive tender are not covered by the Consumer Guarantees Act.

Instead, auctions are covered by the Auctioneers Act, passed in 1928, which prohibits any unlicensed person from conducting an auction. But this Act defines an auction as a sale in the presence of six or more people, in a place accessible to the public, where a licensed auctioneer bangs his gavel to signal its completion. Obviously the Act did not envisage the possibilities of the internet. Thus online auctions do not fit the statutory definition of what an auction is. We're calling for an urgent update to the laws to recognise this new way of doing business.

Currently, your rights will depend upon whether you are buying from a one-off, private seller or from a professional trader.

Buying from a private seller

Online auctions where you buy from a one-off, private seller are regarded as "private sales". You have limited protection, since private sales are not covered by either the Fair Trading Act or the Consumer Guarantees Act.

However, contract law does apply: for example, the seller can't refuse to supply, or supply the wrong thing; and buyers must pay up.

You may also have some protection from the Contractual Remedies Act, but you'd need to be able to prove that:

you bought an item based on information provided by the seller, and
that information provided by the seller was wrong, and
the false information provided by the seller meant you have lost money.

The terms and conditions on any auction site will be binding unless they contravene your statutory rights.

Buying from a professional trader

Who is a professional trader?

The definition of professional trader under statutes is very broad and basically covers every regular online auction seller. It doesn't matter if you think of it as a hobby or if you've kept your day job - regular traders are professional traders regulated by law.

To get an idea if the seller is a professional trader, look at their previous sales. If they have several listings for the same type of item, or if they have sold similar items in the past, they are probably a professional trader. It doesn't matter if they think of it as a hobby or if they've kept their day job.

Your rights

In most situations, professional traders selling through online auctions have exactly the same responsibilities as people selling through traditional methods like shops or mail order. These are set out in the Fair Trading Act (FTA), Consumer Guarantees Act (CGA) and Secondhand Dealers and Pawnbrokers Act.

The Fair Trading Act

Under the Fair Trading Act:

The goods must be accurately described on the original listing and in any communications with the seller.
Price comparisons must be valid. The seller must be able to show where in New Zealand the goods sell at the claimed price. They can only make comparisons with actual retail prices, not with recommended prices or overseas prices.
Unless the price is clearly GST-exclusive, the seller cannot add GST after the price is agreed.
Sellers cannot use fine print, policies or terms and conditions to change the deal. Anything that isn't explained in the original listing can't be added later.
See our guide to the Fair Trading Act for more information.

The Consumer Guarantees Act (CGA)

The CGA only applies in an online auction when:

You buy everyday goods for personal use;
And you pay a set price or the opening price equals the Buy Now price;
And you buy from a professional trader.

If you place a bid for an item rather than buying at a fixed or Buy Now price, the CGA does not apply.

Your rights under the Act:

Sellers guarantee the goods do their designed job, are free from defects and are safe.
Importers, including small-scale and parallel importers, have the same responsibilities as manufacturers. Unless they specifically tell you otherwise before the sale, importers or NZ manufacturers guarantee to provide repair services and spare parts for a reasonable time after the sale.
See our guide to the Consumer Guarantees Act for more information.

Disputes

What if the seller lets me down?
If you don't receive the goods you've paid for, or you have a problem with a sale:

Ask the seller why - there may be a good explanation.
Inform the site administrator (they may not be able to help you, but they could ban the trader).
Post negative feedback against the seller involved.
If the other party lives in New Zealand, you can take them to a Disputes Tribunal.
You may also be able to make a complaint of criminal fraud to the police.

What if I change my mind?
In placing a bid you are making an offer. If the seller accepts, you are in a legally binding contract, and unless the product is faulty, stolen, or has a security registered against it, you will be obliged to complete the purchase.

Likewise, if you are the seller you can't just change your mind after accepting an offer on an item you had for sale.

As with any contractual situation, go into it with your eyes open. Read the terms and conditions, make sure you understand exactly what you are buying and how, use an escrow service to protect your money, and keep in touch with the person you are trading with.

Our advice

For buyers

Under the current law for online transactions, you’re only protected under the Consumer Guarantees Act if you buy for personal or household use (not business use) and you buy from someone in trade and you buy from an internet auction at a fixed price like “Buy Now”.
Bidding on an online auction almost always means you have no consumer rights. The sole exception is if you are misled about the condition of the goods.
Never bid on a new item sold by a trader or business in an online auction unless you’re prepared to forfeit your consumer rights.
Check the trader's history, if it's available.
Check the site community message board regularly for advice and warnings.
Check the advice for safe trading on the auction website.
Only use address-verified traders. And get an address from the trader before you pay them money - it might make them easier to trace if you need to contact them later.
Check the item's retail price. Not all auction prices are a bargain! Don't get swept up in the thrill of the chase and bid more than the goods are worth.
Factor in your likely postage/freight costs (bulky items can cost hundreds of dollars to deliver). And NZ Post prohibits posting some items.
Consider insuring expensive items against loss or damage in transit.
Use an escrow service when dealing with new traders, high value items, or when dealing with overseas traders.
Ask questions. Experienced buyers recommend asking lots of questions before you bid. If you know about the product, ask questions even if you don't intend to buy. The responses will help inform other members.
Make sure you know what you are buying. For example, it's not unusual to sell digital cameras and their memory card separately. Do the goodies come with memory, battery, leads, charger, bag etc?
When you buy from a professional trader, ask the seller how long the product is expected to keep working under normal conditions. That will give you an idea of your Consumer Guarantees Act rights.
When you buy from a professional trader, ask questions about guarantees. Who is the guarantee with - the seller or a local agent? If the seller refers you to a local agent, check with them before you bid - it might just take a phone call or e-mail.
Be realistic about what you are getting. Don't spend hundreds of dollars on products that are likely to need backup advice or service.
If you are buying a major item such as a vehicle, boat or caravan, check the Personal Property Securities Register - a register where information on money owed on personal property is recorded.
Contact the seller promptly after you have won an auction, and pay straight away.
Be suspicious of traders who won't let you collect your purchase. They may be trying to make themselves hard to find.
Print and keep a copy of the original auction posting and any communication with the seller. You'll need it to check the item you receive matches the item pictured or described, and if you need after-sales service.
Never send cash or telegraphic transfers. Use internet banking, cheque or money order so the transaction can be tracked
Pay by credit card if you can. You can reverse the transaction if the goods don't turn up - this is called a Chargeback.
Don't deposit money in overseas bank accounts.

For sellers

Check the site's fees and factor them into your calculations.
Set realistic starting / reserve prices.
Describe the item accurately, and attach a photo if possible.
Make sure your terms of sale are clear, and give an indication as to shipping costs.
If not using an escrow service, don't send the goods until you have been paid (and if paid by cheque, until the cheque has cleared).
Send the goods promptly, and in accordance with your agreement with the buyer. We recommend using a post or courier service that allows you to track where your parcel is and whether it has been received. If the parcel never arrives you'll have to refund the buyer their money.

Disclosure: Some of our information appears on the Trade Me website by arrangement between Trade Me and Consumer NZ.

Case study

Sandra Young thought she’d found a bargain when she placed the winning bid on a Dell laptop at online auction website GraysOnline. Her winning bid was $799, to which was added commission, GST and freight – all up Sandra paid $950.

Unfortunately, the laptop died just four days after it was delivered. Taking it to a local computer store for analysis, Sandra was told the motherboard was dead – and that it would cost more than the computer was worth to fix. According to the serial number of the computer, it was only two months old when it died.

Unhappy with paying $950 for four days of computing, Sandra went back to GraysOnline and Dell to see what could be done. Dell simply said: “You don’t have a warranty for the computer.” GraysOnline reminded her that she had had five days from the time of purchase to return the computer and hadn’t done so. It also said the computer didn’t have a warranty and that she had had the option of buying a one-year warranty from Dell at the time of purchase for $283 (incidentally a three-year warranty on a new Dell computer is cheaper at $243).

GraysOnline lists its Dell computers as “new”, “resealed” and “faulty”. The Dell laptop Sandra bought was listed as “resealed”, which GraysOnline describes as “may have been removed from its packaging by the manufacturer for testing or other purposes, or may have been opened and returned by a customer with little or no use”.

Frustrated, Sandra got in touch with us to clarify her consumer rights. But we had to tell her she had few rights – because of this country’s archaic laws on online auctions.

Legal confusion

If Sandra had bought her computer from a store, she’d have protection under the Consumer Guarantees Act (CGA): the computer would have to be fit for purpose and of reasonable quality. Regardless of whether she had a warranty, she would be entitled to a repair, replacement, or full refund. But because Sandra bid for her computer in an online auction, she had none of those protections (see Your rights).

Sandra would be protected by the CGA if she had bought the computer at a fixed price – like a “Buy Now” price – at an online auction site. This is because the transaction is then not an auction; it’s simply an online sale. But by the simple act of bidding, a transaction becomes an auction and so Sandra’s rights go up in smoke … much like the computer she bought.

Sole exception

Since the CGA doesn’t apply to auctions, the only consumer protection is the Fair Trading Act. This says that “all representations must accurately convey the condition or history of the goods being sold”. Or in plain English: the description of the goods mustn’t mislead the customer.

We asked GraysOnline to confirm that the computer Sandra bought wasn’t mislabelled or misrepresented – surely a computer that dies within a week must be faulty and therefore the description must have been misleading?

But GraysOnline says it tests every computer it auctions using an internationally recognised diagnostic tool – and the report came back clean. GraysOnline provided us with a copy of this report and, sure enough, the computer was functional and fault-free at the time of sale. It seems an unfortunate piece of timing that Sandra’s computer failed less than a week later.

The putting right

Now for some good news. GraysOnline has agreed to give Sandra a full refund on the failed computer – something it doesn’t have to do legally. We wish all traders had this attitude to righting wrongs regardless of their legal position.

Links to auction sites

New Zealand auction sites

Overseas auction sites

For more information see Internet shopping rights.