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Commentary
Let the Bidding Begin: A Walk Through the Auction ProcessSo, now that you are an expert on the history and types of auctions and are aware of online privacy concerns, you are probably ready to learn more about the auction process itself. This next section will give you an overview of what happens during the auction process, and give you tips to make your auction experience go smoothly! The making of a contract When you participate in an online auction, either as a buyer or as a seller, what you are really doing is making a contract to buy or sell something. So, you and the other person make an agreement about what is being sold, for how much, and for other terms the two of you might decide to include. Some of those agreements are details the two of you work out between yourselves. Others are things that the law says are part of your deal whether or not the two of you discuss them. So, let's find out what contracts are, what kinds of deals you can make, and what the law says is part of your deal regardless of whether you want it or not. What makes a contract a contract? We've all made contracts in our lives. A contract is simply a deal between two people saying that if one person does a thing, the other will do something in return. Every time you buy something in a store, you've made a contract - you give the cashier money, and the cashier gives you the stuff you're buying. That's a contract. OK, but if it was all that easy, we wouldn’t need lawyers to work out the details, right? Let’s break down the essentials of contract law. We’ll start by exploring the five main things that people argue about when dealing with contracts: offers, acceptances, payment, agreements, and the terms of the deal itself. What is an offer? An offer is basically just what it sounds like. One person might say, "I'll pay you $20 to wash my Rottweiler." That is an offer. So is parking your 1978 Ford Pinto on your lawn with a sign that says "$50 or best offer." What is it though that makes these offers? The fact that a person is promising that if she and the other person can agree to the terms, she’ll do what she says; makes it an offer. In the auction setting, the seller is making an offer to potential buyers to sell at the best price made within the time established. But what if you change your mind, and decide that you really like that car on your lawn after all? Can you change your mind? You can, unless someone has paid you to keep your offer open until a certain date. For example, if someone says, "Hey, I really love your car, but I have to check my piggy bank and see if I can come up with $50. How about I give you 50¢ now not to sell it to anyone else, and I'll let you know by tomorrow night whether I can buy it." If you say, "OK," then you can't change your mind until after tomorrow night. Now, obviously if you haven't made this kind of a deal, and someone comes up to you six years later and says to you, "You know that 1978 Ford Pinto you had sitting on the lawn for sale for $50? I'd like to buy it now," you don't have to sell it to them then because it's not reasonable. In terms of an auction; however, there's almost always a set time frame, and the owner promises to sell to the highest bidder (or the highest over the minimum amount) at the end of the period. Regular people can usually change their mind about selling an item any time before they make a deal because they weren’t paid to hold the offer open. However, merchants (people in the business of buying and selling that kind of thing) can’t change their minds if they promised to keep an offer open for a particular amount of time. For example, when K-Mart puts out an ad with this week's prices on toothpaste and Frisbees, it's stuck with those prices for whatever period of time the ad said. In an auction, though, the rules of the auction site usually dictate that the seller has to sell the item to the highest bidder unless her price minimum is not met. So if you park your car on your lawn, you can change your mind any time. But, if you list it with an auction site, you'll have to sell it unless no one bids or no one reaches your minimum price. If I have an offer, how do I accept it? To accept, basically you just say "Yes!" OK, you need to say a little more than that, but the "yes" is the main thing. So if I say, "I'll give you $20 to wash my rottweiler," you could say, "O.K., where's the bucket?" and you would have accepted. But maybe this big, lovable attack dog, doesn't like baths. Then twenty bucks might not be enough. So maybe you'd say, "Are you kidding? I wouldn't do it for less than $47.36!" If so, you haven't accepted the offer. Instead, you have made your own offer that I must now choose to accept or not. I might say, "OK, just get her clean." Now I've accepted your offer. In both situations, we have a deal. You have promised to wash my dog, and I've promised to pay you. What do you mean we need an agreement? Remember my dirt covered rottweiler? When you said "I won't do it for less than $47.36," I thought you were making me a counteroffer. But what if you weren't? What if you were just thinking out loud? Then me saying, "OK here's fifty bucks" doesn't create an agreement between us, because you didn't really agree. That's why folks sometimes shake hands on a deal – because it’s a confirmation that they both mean to be making a deal. What is the deal? Well, the easy answer is, the deal is whatever the people agree to. The hard part is figuring out what it is they agreed to. If there's something written down, then that's what you look at to figure out what the deal is. But, you don't have to write anything down unless you're buying and selling land or a house or condo, or if the price of what you're buying or selling is more than $500. In an online auction, this isn't going to be a big issue though. Usually part of the agreement you make when you sign up to use the site is that there are certain things that you agree will be part of any deal you make if you use the services that the site provides. The thing to do is just check out what the site agreement says, and figure that what it says is part of your deal with the buyer or seller. There are some other rights you might have as well; like the option to check the goods out before you pay, or the option to return an item. We will discuss these rights later. Who can make a contract? Pretty much anyone can make a contract. But there are some people who can get out of contracts. Kids (people under 18), for example, can make contracts, but unless the deal was for something necessary, like food or clothes, they can get out of contracts. So if you're 15 and you go to Walgreen's and buy a bottle of milk, you're stuck. You've made a deal. On the other hand, if you go to Best Buy and buy a CD, you may be able to get out of it. Also, mentally handicapped people can make contracts, but if the other person took advantage of them, then they can get out of it. However, if the mentally handicapped person was not taken advantage of, they can only get out of it if the other person has not already fulfilled all or most of her/his obligations. What kind of stuff can you buy and sell? People can agree to buy and sell almost anything: dog washing services, cars, Ewok figurines, etc. However, there are some things that you can’t buy and sell. You can’t buy or sell stolen items or items that are illegal. Payment methods Paying is, of course, part of what contracts are about. There are two basic types of payment - the money kind, and the work or stuff kind. Usually, one person pays with money, and the other pays with work or stuff, though sometimes people exchange work or stuff without money. Either way is OK. In an auction, of course, one person will be paying with money, and the other with stuff. For this part, it doesn't really matter who goes first - I can pay you first, you can pay me first, or we can pay each other at the same time. In an auction, the seller decides who pays whom, when and how. The other thing to remember is that it doesn't really matter whether the deal is fair in the sense that both people get a good deal. If, for some reason, two people agreed to buy and sell a goldfish for $5,000,000,000, that would be OK - it doesn't matter that the goldfish is worth very little, as long as the people both meant to make the deal and everybody played fair. There are many different forms of payment methods. As a seller, it is important to consider the pros and cons of each form of payment and decide which is best for you. As a buyer, the pros and cons of each type of payment are important, because different payment methods will better meet the needs of different buyers. For example, some payment methods are better for buyers who want their goods right away, while other methods are more suited to buyers who are worried about fraud. Buyers can encourage sellers to use different types of payment methods and will want to be wary of a seller that is unwilling to engage in more secure types of payment methods. Some of the most common forms of payment are listed below: Barter This ancient form of trade, where the parties simply swap goods rather than money, still has its place in the world of online auctions. Both parties must agree to it, and the seller must still pay the auction list fees. Example: Kim lists her Tennessee Top Tension banjo on an online auction for a reserve price of $1,000. However, she states in the listing that she would be willing to trade her banjo for a Vega Deluxe Banjo. Another, banjo fanatic sees her ad and agrees to the trade. Kim pays the site its fee, and works out the details of the trade with the Vega Deluxe owner. Cash Payment with cash is highly convenient. There is no additional cost or wait while a check clears. The only downside is that there are also no records. If the money gets lost in transit or if the seller breaches, the buyer will be unable to prove that he actually paid. For this reason, sending cash through the mail is strongly discouraged! However, cash, with its simplicity, is favored for those auctions that conclude with face-to-face transactions. Example: Andrew, a locally known artist, auctions off some of his paintings depicting scenes of his hometown, to benefit a local charity. The winning bidder lives in the same small town. Andrew agrees that the winning bidder may come to his studio to inspect the work personally before paying Andrew in cash. Personal check Personal checks are another convenient method of payment. Many people have checking accounts, checks lost in the mail can be cancelled, and there is minimal cost involved. Most sellers will require the check to clear before they ship the goods, adding up to 10 business days to the process. Keep in mind, unscrupulous sellers can alter the check to withdraw more money or even use information on the check to drain a bank account or steal someone's identity. If you use checks for purchases, keep the personal information on it to a minimum - remove your phone number, address, or social security number. The only personal information necessary on the check is your name. Example: Dave does not have a credit card and persuades the seller to accept a personal check from him. Dave has already made sure that unnecessary information such as his social security number and phone number are not on the check. The seller warns that the transaction will take longer, because of the time involved in waiting for the check to clear. Dave does not need the item right away, so he agrees to this. Once the check clears, the seller sends Dave his product. Cashier’s check Cashier's checks are similar to personal checks, but because the bank issues the check, there is no risk of identity theft or a long wait while a personal check clears. They allow for immediate payment to the seller, but require a trip to a bank. There is a small cost involved as well ($3-5). Unfortunately, there is always the risk of a seller cashing the check but not sending the goods. Example: Jess does not have any credit cards but does have a checking account. However, she wants the item for a gift and needs it delivered as soon as possible. The seller tells her that he will not send the item until a personal check clears. Therefore, Jess decides to pay by cashier's check. She goes to the bank and has a cashier's check made and sent. When the seller receives the check, he immediately cashes it and sends the product to Jess. Money order Money Orders are available for a small fee from currency exchanges, banks, or post offices. Similar to cashier's checks, they also allow for immediate payment to the seller. Unlike cashier's checks, they are very difficult to trace, so fraudulent sellers often request payment in this form. Example: Andrea wants to participate in an online auction for ownership of a tract of land in Alaska. The seller demands that payment be in the form of a money order. Andrea tries, unsuccessfully, to persuade the seller to accept a different form of payment. Skeptical, Andrea investigates the seller, and finds out the seller's listed telephone number is not a working number and that the seller's listed address is an abandoned residence. Shrewdly, Andrea suspects fraud and decides not to bid in the auction. Credit card Provided the seller will accept a credit card as payment, this method is highly convenient. There is minimal processing time and the risks to the buyer are reduced by protections offered by the credit card companies. Contrary to many people's beliefs that giving out credit card numbers online exposes you to more fraud, it is perhaps one of the safest ways to pay online. In the event that something goes wrong, you are protected under the Federal Fair Credit Billing Act. You have the right to dispute charges on your credit card, and you can withhold payments during a creditor investigation. If it is determined that your card was used without authorization, you are only responsible for the first $50 in charges, which you are rarely asked to pay. The risk can be reduced even further by the websites’ safety measures in transferring data. You can find information about their safety measures in their privacy or security policy sections. One drawback to using a credit card in auctions is that it adds 3 – 5% to the purchase price. In the extreme, unscrupulous individuals may also use your credit card to steal your identity. Example: Scott is the highest bidder in an online auction for a DVD player. The seller offers payment options of personal check, money order, or credit card. Scott wants the DVD player as soon as possible, so does not want to wait the extra time for his personal check to clear. In addition, he is worried that the DVD player might not function as well as the seller has advertised and wants an easy means to resolve any conflicts that might arise. Thus, Scott pays by credit card, knowing his credit card company has a convenient chargeback procedure. Escrow Many third parties offer escrow services. For a small fee, usually 3 - 5% of the purchase price, the escrow service will act as a middleman between the buyer and the seller. The buyer first pays the escrow company, and then the seller ships the item to the buyer. The buyer then inspects the goods according to predetermined conditions and provided that the goods meet those conditions, the buyer notifies the escrow service and the seller gets paid. Use of an escrow service increases the time it takes for the seller to get paid. The seller also risks nonperformance by the buyer because the buyer can claim that the shipped goods do not match what was agreed upon. However, the buyer will have to pay the escrow fee. Example: Sophie has contacted an online auctioneer of a big screen television. To Sophie, the seller seemed sort of suspect, eluding a lot of her questions about the condition of the television. Sophie informs the seller that she will only participate in the auction if he allows her to use an escrow service. The seller agrees, making Sophie feel more confident about bidding in the auction. At the close of the auction, she is the highest bidder. She pays the escrow service provider and the big screen television is sent to her. Satisfied with its condition, she informs the escrow service to continue with the payment. Cash on delivery (C.O.D.) Provided that the seller offers this method, C.O.D.s can provide the buyer with increased security. Depending on the nature of the item, the buyer can inspect the goods before making payment. This option also comes at an increased price because the delivery agent must be paid and the seller will also have to pay for shipping insurance. Example: Elaine is the highest bidder for a collection of records. She and the seller agree for her to pay cash on delivery. When the package arrives, Elaine hears a lot of rattling in the box and quickly opens it to discover many broken records. She refuses payment to the delivery person and the package is returned to the seller. Paypal, Billpoint, etc. Some Internet-based third parties have developed the means to make electronic payments instantaneously for little or no cost. They pose no risk of identity theft, and the buyer is often protected by his credit card's fraud protection policy. However, both the seller and buyer must register for such services. Two popular providers can be found at www.paypal.com and www.billpoint.com. Example: Jerry wants to provide a convenient method of payment for his online auction customers. He reads about a service similar to PayPal and Billpoint, and realizes that this would be the best way to provide his customers with timely delivery of goods and peace of mind in knowing they can dispute the transaction. These features are provided with only a small transaction cost. Jerry decides to offer these types of electronic payment to his customers. Taxation Do you have to pay sales tax on the purchases you make on an Internet auction site? That's a good question, and the answer is: it depends. Sales taxation on online auction purchases, as well as other forms of Internet sales is one of the most confusing issues for buyers and sellers. The United States does not have any sort of national sales tax; therefore, online auction sales are subject to state taxation laws, or, if you are dealing with international sales, foreign taxation laws. In general, goods sold at retail over the Internet are taxed in the same manner as any other form of retail sale. So, you first have to decide what type of sale you have: 1) sale where the buyer and seller are in the same state (intrastate), 2) sale where the buyer and seller are in different states (interstate), or 3) sale where the buyer and seller are in different countries (international). Intrastate sales Intrastate sales are those sales where goods are shipped to a buyer located in the same state as the seller. Sellers are required to add applicable state sales taxes to all intrastate transactions. So, if you live in Illinois and buy something from Magz in Illinois, then Magz is required to add Illinois sales tax. Interstate sales Interstate sales are those sales where goods are delivered to a buyer located in a different state from which the seller shipped the goods. Sellers are not required to apply sales taxes to transactions made with buyers in other states. However, in many states, including Illinois, buyers are required to add a "use tax" to any goods bought from another state. So, if you are an Illinois resident and you buy something from a seller in Alabama, the seller will not be required to add Alabama or Illinois sales tax; however, you will be required to pay an Illinois use tax. Tip: Watch out for out-of-state sellers that attempt to add a state sales tax to your purchase. International Sales Two types of taxes may be applied if you use an online auction from a different country: National Sales Taxes or Value Added Taxes (VAT). Unlike the United States, some countries have a National Sales Tax that is applied to goods and services sold in that country. For example, in Canada there is a 7% national sales tax applied to sales of goods and services. It is typically the seller's responsibility to assess this tax, so buyers in the United States are not required to remit taxes to countries imposing such taxes. Most European countries impose a value added tax on a buyer's expenditures for goods and services. When sending goods to a buyer in a VAT country, the buyer usually pays the tax. Tip: International buyers may ask that a seller declare that the item is a gift in order to illegally avoid paying certain taxes. Customs If goods are brought into the U.S. from any foreign country, the goods are imported. If goods are imported into the U.S., they must clear customs and may be subject to a customs duty (tax). The United States has specific rules that govern the importation of goods. When you buy items from a foreign source, you become an importer, and are responsible for complying with these rules. These rules apply whether the goods are bought from a "brick and mortar" establishment or an online auction site, and whether the goods are new or used. It is therefore important for a buyer to know what can be imported and the procedures for importing, before deciding to purchase from a foreign seller. Admissibility When you purchase something from an international seller, you need to be aware that you aren’t allowed to bring some things into the U.S. The government wants to keep stuff out of the U.S. that might injure community health, public safety, American workers, children, domestic plant and animal life, or anything that would defeat our national political interests. Oftentimes, it’s pretty obvious which products could cause injury, or have the potential to do so; however, many things are prohibited or restricted even though they seem pretty innocent. Before you purchase an Ecuadorian flute from Javier in Ecuador or anything else from any international seller, you may want to talk to Customs about the items you plan to buy to be sure they're not prohibited or restricted. Prohibited means it's against the law to bring the item into the United States, period. If the item is restricted, a special license or permit from a federal agency is required before the item can be brought into the United States. Things like firearms and certain fruits, vegetables, pets, and textiles are restricted. The US Customs Service has prepared the following list of restricted items. In order to import any of the items, you must get a license or permit. These items include alcoholic beverages, animals and animal products, certain drugs, firearms and ammunition, fruits, nuts, meat and meat products, dairy products, plants or plant products, poultry or poultry products, petroleum or petroleum products, trademarked articles, and vegetables. Regulating agencies include: Bureau of Alcohol, Tobacco & Firearms Animal and Plant Health Inspection Service Agricultural Marketing Service U.S. Fish & Wildlife Service Food & Drug Administration Today, an increasing number of goods and products such as textiles, clothing, automobiles, boats, radios, television sets, and medical devices, are subject to special standards, declarations, certification, marking or labeling requirements. Other merchandise may need to be examined for fitness of use, freedom from contamination, or may be subject to quotas on the quantity imported. All these requirements must be met before the merchandise will be released by Customs. The importing process OK, so my Japanese Playstation IX is not prohibited
or restricted, but how do I get it into the U.S.? The importing process includes
preparing the customs declaration, shipping, and paying duty. Customs Declarations A customs declaration is a form that must be included with the paperwork used for sending international packages. The declaration requires information such as a full and accurate description of the merchandise (in English), quantity of items being imported, purchase price (in U.S. dollars), weight of the package, and the country of origin. Completion of the declaration form is the seller's responsibility. Any foreign shipment that is not accompanied by a declaration form could be subject to seizure or forfeiture, or returned to the sender. Shipping There are three ways that you can have things sent to you from another country: postal service, courier, and freight shipment. International postal service If the value of your item is less than $2000, this is one of the easiest ways to import a package. Items are shipped to one of the Customs Service's international mail branches where they are cleared by a customs official and forwarded to your local post office. If any duty is owed, you pay it at your local post office when you pick up your package. There are two drawbacks: if your package is worth more than $2000, it will be subject to more complicated entry procedures and paperwork and most packages sent through the mail don't have tracking numbers and are therefore difficult to recover if lost in the mail. Courier shipping When items are shipped by a courier service, the service usually employs a customs broker to handle any forms and clear the items through customs. This means that items can be delivered right to your door. The problem with this type of service is that it can be very costly, sometimes even higher than the cost of the purchase. Freight Shipping When items, like bikes, are shipped by freight, they will arrive at a U.S. port of entry where they will need to be cleared through customs for entry. From here, you have two choices: direct the freight company to hire a customs broker and deliver the bike to your door; or, you can clear the bike through customs yourself. Whichever you choose, it is important to remember that the U.S. Customs Service does not notify importers when items arrive at a port of entry. If your bike sits at a port of entry for more than 15 days, it will be transferred to a warehouse and you will be charged storage fees when you finally retrieve your bike. Duty So, my Power Puff Girls Spaceship has been shipped into the US, is there anything else I have to know? When items are imported into the US, they are subject to a duty fee, a type of import tax. As the importer, you are responsible for paying any duty owed on an import. Determining duty can be very complicated, and is ultimately up to Customs to determine exactly what duty will be charged. However, shipping services will often give an estimate for what the duty rate on an item might be. Don't be misled by the seller into thinking your purchase price includes duty either, because the seller cannot know with certainty what the duty will be. Even if your purchase price includes shipping and handling, it usually does not include duty or any costs associated with clearing the goods through Customs. How you pay duty depends on how your seller shipped your goods. When using the International Postal Service, you will end up paying the duty to the mail carrier or your local post office when your package arrives. If the seller ships your goods by a courier service, that service will typically pay the duty on your behalf and then bill you or require payment on delivery. Two things could happen if the seller sends by freight: if you decide to pick up your spaceship at the port of entry, you will pay duty directly to Customs at the port where the spaceship arrives. If you arrange for a broker to clear your spaceship and ship it to your door, the broker will bill you for their services and any duty they paid on your behalf. Remember: Ultimately it is the importer - YOU - that MUST pay the duty, not the seller! Duty on Electronic Goods Information or other stuff downloaded from the Internet is not subject to duty. So, if you purchase and download things like books, software, or music, you don't have to pay a duty. Remember though, you can get into trouble for unauthorized downloads of copyrighted materials. Exporting So, what if I am sending a Harry Potter book to another country? Most countries have the same types of regulations governing the importation of goods into their country. So, if you are sending stuff to another country, you might want to contact the Customs authority of that country to make sure it can legally be imported. Some things sold for export are also subject to the requirements of the U.S. Customs Service and other government agencies. Things like cars and goods with potential military applications, including some electronics and software, must be cleared through our Customs Service before they are exported. Lastly, if you export stuff worth more than $2,500, you need to follow a formal export process. Shipping So, you've just placed the winning bid on that Karaoke machine from Andrén Alaska - that's great, but how is it going to get here, and who is going to pay for it? One of the most frequent sources of miscommunication between buyers and sellers is shipping terms. To avoid this confusion, it is best to spell out the terms at the very start. Sellers should state their shipping terms when they list their goods for auction. Buyers should not bid on goods until they know what the shipping terms are. There are a few terms that should be decided up front. Who will pay for shipping, the buyer or the seller? If the buyer pays, is it a fixed cost or the actual cost? Will the seller ship internationally? What service will be used to ship? Is the package insured? Shipping insurance Some shipping companies automatically protect your shipment against loss or damages up to $100. If your shipment is worth more than this amount, you may want to purchase additional insurance for the package. The United States Postal Service and most express shipping companies sell additional insurance for both domestic and international shipments. Payment on international transactions Most sellers on U.S. auction sites, whether domestic or international, expect payment in U.S. dollars. However, sellers and buyers can agree to use other types of currency if they so desire. The typical payment options for international transactions include credit cards, which are the preferred option, as Visa and MasterCard will convert foreign currency to U.S. dollars at no charge. International money orders are also an option and can be purchased in U.S. dollars at foreign banks for an $8 fee. As always, cash is the least preferred option and the most risky. For information on conversion rates for foreign currency, see the Universal Currency Converter or the OANDA Currency Converter. Next:Things to Know to Avoid Complications (Even Fraud!) in the Auction Process |
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