Electronics

Auctions online

Updated 28 Feb 2011

Introduction

How online auctions work, your rights, and advice for buyers and sellers.

If you buy goods from a shop, you have the Consumer Guarantees Act and the Fair Trading Act to fall back on. But online auction deals between private individuals aren't covered by these acts. Goods bought via auction from professional traders aren't covered by the CGA either.

We explain the protection you do have, and what to do if things go wrong.

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.

Buying from private sellers

When a deal with another private individual turns sour, you have to rely on laws other than the Consumer Guarantees Act (CGA) to see you right.

Misrepresented goods

If a seller claims a product is in "top working order" but you're sold a dog, the Contractual Remedies Act (CRA) may help. This Act says that if the seller misrepresents the product and you're persuaded to buy it because of that misrepresentation, you can claim damages. If the misrepresentation leaves you seriously out of pocket, you have the right to cancel the deal.

Case study: the $11,000 campervan
A Toyota HiAce campervan was listed on Trade Me as "in perfect mechanical condition". The van sold for $11,000 but the buyer subsequently discovered it had an illegal warrant of fitness, uncertified modifications and needed $16,000 of repairs. The Disputes Tribunal held the seller had misrepresented the van's condition and the buyer was entitled to cancel the contract. The seller was ordered to repay the $11,000 and collect the van at his own expense.

Degree of influence

To succeed in a claim under the CRA, you have to do more than just prove the seller misrepresented the product. You also have to show the misrepresentation influenced you to make the purchase. The misrepresentation doesn't have to be the only factor you relied on – but it does have to be a significant one.

Case study: the $1500 car
A 1990 Honda CRX sold on Trade Me for $1500. The car subsequently failed to get a warrant and the buyer wanted to cancel the contract. Although the Disputes Tribunal found it was "more probable than not" that the seller had misrepresented the vehicle's condition, the buyer wasn't entitled to cancel. He had viewed the car on two separate occasions before buying and knew the vehicle had failed its last WOF inspection. As a result, the tribunal wasn't persuaded the seller's claims had induced the buyer to purchase and his case failed.

Repairs

The CRA also allows you to claim for damages if you've forked out for repairs on your auction purchase. But there are limits. The law says you have a duty to minimise your losses – so your claim's not likely to succeed if you've continued to repair some item with major faults.

Case study: the $6100 boat
The buyer of a second-hand boat went to the Disputes Tribunal claiming $7200 in repair costs. He'd paid $6100 for the boat, listed on Trade Me as in "excellent condition". The engine failed soon after the boat was delivered and required a series of major repairs. The tribunal was only prepared to award the buyer $1150 to cover the costs of the initial repairs. It held the buyer shouldn't have proceeded with the subsequent repairs when the costs became apparent.

Description errors

The Sale of Goods Act may also provide some comeback if you've bought a product that doesn't match its description. The Act says where goods are "sold by description" then they must correspond with that description. If they don't, you can reject them. "Description" usually means a statement about the kind or class of the good, rather than its condition or quality.

Case study: the $5500 motorbikes
Two Triumph motorbikes were sold on Trade Me for $5150. The buyer later discovered some of the parts were from a different make of bike (a Yamaha) and other parts were missing. The tribunal held the bikes didn't correspond with the description of a Triumph motorbike and ordered the seller to repay the $5150. The buyer was required to return the bikes once payment had been made.

Getting compensation

The Sale of Goods Act also gives you the right to keep the goods but claim damages for any financial loss resulting from the inaccurate description. The hitch is sellers can contract out of the Act – and if they do, these rights won't apply.

Buying from professional traders

If the seller is a professional trader you still have the protection of the Contractual Remedies Act. But you're also covered by the Fair Trading Act and, in some cases, the Consumer Guarantees Act and the Sale of Goods Act.

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.

Misleading information

The Fair Trading Act says professional traders can't mislead consumers about the condition or history of the goods they sell. You can take them to the Disputes Tribunal if they do.

Case study: the $2050 van
A diesel van sold on Trade Me for $2050. The trader stated the van had no outstanding road-user charges but the buyer subsequently discovered it did – $2150 worth. The Motor Vehicle Disputes Tribunal found the trader's statement was misleading and ordered her to pay the outstanding costs to the buyer.

Acceptable quality

If you buy online from a trader at a fixed price, you'll have the protection of the Consumer Guarantees Act (CGA). The Act says goods must be of acceptable quality and fit for purpose.

But if you bid on an item being auctioned by a trader and "win" it, you won't have any comeback under the CGA. That's because the Act excludes items bought through auction or competitive tender – a legal loophole that needs to be closed. Trade Me also wants to see this auction exemption under the CGA closed off.

While the CGA doesn't apply to auctions, the Sale of Goods Act does – unless the trader has contracted out of it. The Act says goods sold by professional traders (but not private individuals) must be of "merchantable quality" and "fit for purpose". You have grounds for a claim against the trader if the goods fail to meet these criteria.

Case study: the $5600 VW
A 1997 VW Golf sold on Trade Me by auction for $5600. A week later, the VW’s air conditioning (AC) unit exploded, holing the radiator and causing $3500 damage. The car was advertised as having AC and the buyer said the trader had assured her it was working as it should. The Motor Vehicle Disputes Tribunal found the unit was defective and the trader had therefore breached the "merchantable quality" warranty in the Sale of Goods Act. The trader, who failed to appear at the hearing, was ordered to pay the repair costs.

Disputes

If you do end up with goods that fall well short of what was advertised, try to sort things out with the seller first. If that fails, your next step is usually the Disputes Tribunal. The tribunal can only hear claims up to $15,000 (or $20,000 with the agreement of both parties).

If you've bought a car from a motor vehicle dealer, you can take your case to the Motor Vehicle Disputes Tribunal. It can hear claims up to $100,000.

Whichever tribunal you appear before, you’ll need to be prepared:

Collect your evidence. Bills, receipts, quotes for repairs, emails, phone messages, photographs, any expert reports – they're all valuable.
Put together your evidence. Prepare a summary of your case with the key issues clearly stated.
Make sure any important witnesses can attend the tribunal hearing – if not, see if you can get a new date for the hearing or ask the court staff if it's possible for witnesses to attend by telephone.

If you take a case to the tribunal and win, that's not always the end of the matter. The other party may not pay and you'll have to chase-up payment. You can request enforcement of a Disputes Tribunal order by the courts. This can be a lengthy process and it could well be some time before you get the money that's owed you.

Trade Me

Trade Me says most of the 12.5 million transactions that take place through its site each year complete with no problems. But that's not always the case. During 2010, Trade Me figures show that 439 sales resulted in Disputes Tribunal claims.

If you get duped by a shady seller, let Trade Me know. The site's terms and conditions require sellers to enter listings that are "accurate, current, complete and include all relevant information". Trade Me says around 140 members are banned each month for breaching this condition.

Trade Me has also developed a protocol with the Disputes Tribunal to assist people who want to bring a claim. It provides court registrars with a statutory declaration that claimants complete. When the declaration is filled out, Trade Me will release its formal record of the deal.

Case studies

A $4300 jet ski listed on Trade Me as in "top condition" broke down the day after purchase. The Disputes Tribunal ordered the seller to pay the buyer $4400 in damages to compensate him for the amount spent repairing the ski.
A PS3 player listed as being still under warranty sold for $500. When the buyer received the machine, it didn't work and he found the warranty was no longer valid. The tribunal ordered the seller to repay the $500 plus freight.
A 1995 Toyota Toyace listed as having done 190,000km sold on Trade Me for $6000. The buyer found the truck's actual mileage was 285,000km. The tribunal ordered the seller to pay damages of $1500, the difference between the purchase price and the truck's estimated value.

Our advice

For buyers

Always check the seller's history thoroughly.
Check the site community message board regularly for advice and warnings.
Check the advice for safe trading on the auction website.
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.
Ask questions and make sure you know what you're buying. For example, it's not unusual to sell digital cameras and their memory card separately. Do the goods come with memory, battery, leads, charger, bag etc?
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.
If you're buying a vehicle, check it has a WOF less than one month old (provided the buyer agrees, sellers have the option of selling without a WOF or with a WOF older than one month); arrange for a thorough mechanical inspection of any vehicle; and check the Personal Property Securities Register to find out if money is owed on the vehicle.
For high-value items, consider using an escrow service.
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.
Consider insuring expensive items against loss or damage in transit.
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.