Buyer Beware – The Dangers Of Domain Auctions + How You Can Avoid Common Scams

Auction

It’s no secret that some people out there scam popular domain auction platforms by creating fake accounts (or colluding with friends) to bid up the price of their own name. I’m not pointing the finger at any one platform, but I am saying it’s about time we admit there’s a problem. So I thought now would be a good time to share some of the common behaviors to look for and ways you can avoid dramatically overpaying for a domain at auction.

First let’s look at the most common way you can identify these scams, look for bidding like this:

Bidder 1 – $10

Bidder 2- $15

Bidder 3 – $20

Bidder 2 – $1,500

Bidder 1 – $2,000

Bidder 2 – $5,000

Look at Bidder 2, they are making huge price jumps, from $20 to $1,500 and then from $2,000 to $5,000. While a common excuse may be, “well maybe they are just testing to see where the reserve is” the truth is that many times this means that Bidder 1 and Bidder 2 are either the same person or two people working together. Either way the end result for poor Bidder 3 is paying much more for the domain than they should.

While most of the companies that run auction platforms are working hard to catch scammers, this still happens all the time so as a domain buyer you need to be incredibly vigilant. This means killing a bit of logic you might have stuck in your head:

“Just because an auction looks hot, doesn’t mean the price hasn’t far exceeded what you could hope to sell the domain for”

I can’t tell you how many times I’ve heard someone say something like, “I bought this domain for $1,200 in an auction so I’m sure I can flip it for $5,000 or more!” If the domain is really just someone else’s junk and you spend hours bidding against the owner and their friend then you might find-out that nobody wants to buy the name for more than $500. Had you been in a normal auction you could have bought the name for $100 or so but thanks to a bidding scam you overpaid, big time.

Below are a few ways you can avoid common bidding scams:

  1. Look for two bidders going back-and-forth and upping their bids by larger amounts than seem normal
  2. If the auction platform allows it, look for bidders up-bidding themselves (i.e. putting in an $1,000 bid and then following-up with a $5,000 bid before anyone else outbid them)
  3. Avoid using auction houses you haven’t heard of, and if you do, make sure to research them before bidding
  4. Set a price in your head you won’t exceed, don’t bid past this price (you should always be doing this!)
  5. If something looks fishy, avoid the auction, there are plenty of other names out there

Last but not least, yes, you will spot some auctions that you think are scams that are not. Sure, even in the bidding pattern above there could be legitimate buyers that are just wild bidders. However, I think a false positive is a lot less risky than buying a domain for 10x what you should have paid. So be vigilant, pay attention to the bidding patterns on every auction you are involved in.

If every one of us reports bidding scams when we see them we can help bring these scammers to justice that much faster. The problem is when we see something and just don’t bid, letting someone else get scammed. So don’t be shy, auction companies actually want to catch these people so if you see something, say something!

Photo Credit: Joe Gratz via Compfight cc

{ 7 comments… add one }

  • Domenclature.com May 14, 2014, 11:11 am

    Excellent piece. Only fault is giving the auction houses inexplicable credit. Therefore, I agree 75%.

    3 out of 4 of your major points are solid, and very helpful.

    What I’m waiting for is an in depth look at these weekly sales of domains that makes no sense, but are constantly reported by DR JOURNEY and other bloggers, 99% of these names are trash; they are presented as verified, but I doubt it. These names have no rhyme or logic as why they sell for such amounts, whereas domainers with similar names, but outside the gang never get to sell theirs for a fraction of the price, ever.

    So, you could have delved deeper into something nobody has, instead of the known ones.

    Still, kudos for an excellent piece.

    Reply
  • Morgan May 14, 2014, 11:41 am

    Thanks @Domenclature, appreciate the positive feedback and glad to hear you’d like me to dig deeper. It might be time to do just that…

    Reply
  • Ron May 14, 2014, 11:54 am

    What happens with an innocent bidder gets stuck on the wrong side of this twisted scam?

    Godaddy has profited quite a bit, by not having bidder id’s, and having unqualified bidders who do not always pay, running a muck on the system. The damages could be in the millions.

    Yes, we all want to own nice domains, but you have to honor your bids, and make payment, instead of running people up, with $10 prepaid credit cards on file.

    Reply
  • Aussie Domainer May 14, 2014, 7:30 pm

    I’m not sure how the auction houses can work against this unless they want to suppress new users from bidding or make big sign-up requirements (such as showing ID). Even then people would still find ways around it. It seems that there isn’t much to stop a seller going to his friend’s computer, signing up to the auction site and bidding on his own auctions.

    I guess at the end of the day, when buying sites, we should just put our top bid at the most we’re willing to pay and leave it at that- like you said here, never fall into the trap of thinking that because the auction is “hot” the name must be worth excessively more than you originally thought.

    Reply
  • Tauseef May 15, 2014, 1:43 am

    I think, your initial bid is important and you may safely avoid bidding if other bidders are incrementing their bids in geometric progression.

    Reply
  • Kevin May 26, 2014, 3:35 am

    Morgan, thanks for this post; excellent points all around — in the comments, too.

    All I can do is to echo “…auction companies actually want to catch these people so if you see something, say something!”

    Our trust/safety team investigates all suspicious activity — always. Reach out to me directly should you ever see anything fishy; we take it beyond seriously, and I personally vet and verify every major domain asset that changes hands.

    Reply
  • Linda Justice June 21, 2016, 2:56 pm

    I was told that my domain, which I did not even know about, sold for 25000, but I need to send $5000 in first. Scam?

    Reply

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