Seller Beware: Protecting Yourself Against Auction Fraud

"Buyer beware," warns the old saying, but in today's online auctions, sellers also need caution. Deadbeat bidders, escrow scams, stolen credit cards -- sellers on eBay have been victimized by frauds of every type.

While even eBay's harshest critics concede that the fraud perpetrated on its sellers is small -- less than one percent of all transactions -- it remains a constant concern. Complicating the problem: many of today's Net auction sellers have no formal business experience, and thus might not foresee problems before they occur.

Worse yet, in the opinion of some auction experts, the online auction business is focused exclusively on protecting buyers, and does little to protect sellers.

"It seems as if the sympathy is with the buyers, even from organizations that watch fraud," said Rosalinda Baldwin, chief executive of Auction Guild, an advocacy group for auction merchants. If a consumer's Visa purchase goes sour, a consumer can challenge it. If sellers are victimized in the same way, they have less recourse, she said. However, "sellers are actually much more vulnerable."

Ina Steiner, an editor of AuctionBytes, a resource for online auction users, warns sellers: "Be aware that you don't have the same protections you're used to having as a consumer." Many sellers graduate from selling a few things to becoming power sellers without knowing the risks, she said.

Baldwin puts it more bluntly: eBay "does absolutely nothing" to protect sellers from fraud. "They have no mechanism in place to protect sellers."

But eBay spokesperson Hani Durzy disputes that claim.

"We have a combination of educational efforts combined with certain policies, mainly the seller protection policy through PayPal [which eBay owns] that we feel offers a very good level of protection for sellers," he said.

Furthermore, "Our marketplace would not work as well as it does if one side of the transaction felt a lot safer and more comfortable than the other side," Durzy said.

Knowing the Scams: Ones to Watch For
Given that "seller beware" is a necessary mantra for Internet auctions sellers, here's a run-down of the scams they might face:

Fake Escrow

The seller is wary of parting with her jewelry item until the buyer pays the agreed price of $1200; but the buyer doesn't want to pay the $1200 until he gets the jewelry set. To solve the impasse, the buyer says he'll put the money in an escrow account administered by a third party -- a move typical in high-priced auctions.

The buyer deposits the money as planned, and the seller sends off the jewelry set once they receive a confirmation. But -- whoops! The escrow company was a fake, set up by the buyer -- in reality, an unscrupulous scam artist.

"What [the thief] will do is go to a legitimate escrow site, copy the HTML and put up their own site," Baldwin said, noting that great sophistication goes into creating fake escrow companies.

Sellers need to verify that the company exists in the white pages. "If it's a U.S. company they should be bonded, which means they have a license you should be able to check," she says.

The Drop-Ship Downer

Auctionbyte's Steiner notes that some highly experienced eBay sellers have been burnt by problems with drop shippers. In this scenario, a seller takes a buyer's money, then sends most of it to a third-party wholesale drop shipper. That drop shipper should then send the goods directly to the buyer. But the drop ship company fails to deliver.

Some companies pose as drop shippers until they get your money, while some legitimate drop shippers run into unforeseen problems. Either way, the situation poses problems for sellers: Steiner said she knows at least one who was suspended from eBay for this, and faced fraud charges.

"She was not able to refund buyer's money, but she was responsible to refund that money," she said.

Continued on Page Two: More Scams.