How Does an Online Auction Work?

By Lizz Shepherd

Most online auctions are central websites that allow multiple people to list their items up for auction on the site. On this type of auction site, the site does not have the items in stock and does not ship items or collect the payments for the items. The individual people who sell items through the site are responsible for everything regarding the sale, with the site acting only as a third-party venue to make the sale possible.

To sell an item through an online auction site, it is first necessary to sign up with the site and to put a credit card on file with the auction site. This cuts down on seller fraud and makes it possible for the site to collect its fees when you list and sell items. Members must also create their ID name and give the site their basic contact information before they will be allowed to sell. Then, the member must go through the site's steps to sell each item that they want to auction off. The member generally takes a digital picture of the item and writes a thorough description of it to interest buyers.

Once the item is up for sale on the auction site, other members can find it either through a central search through the auction site or through a search engine search for the item's keywords. Buyers can ask the seller questions if they don't understand everything about an item that they need to know before buying. Once the buyer makes up his mind to buy the item, the buyer places a bid on the item. The buyer may win the item for this amount or he may be outbid by another buyer before the end of the auction.

On some sites, like eBay, the buyer can place a maximum bid that is higher than what he needs to win the auction. Then, if anyone bids against him later the site will increase the first bidder's bid amount up to the maximum bid price that the person allowed. This is known as a proxy bid because the auction site will automatically bid the maximum if the buyer needs to bid that amount to win the item and does so without the buyer having to do anything further.

Once a buyer has won an auction, the buyer must pay the seller directly rather than paying the site itself. There are a number of ways that some sites allow payments to be made, including through online payments, or sending a money order or check. The only form of payment allowed on eBay is an electronic payment. Once the item has been paid for, the seller ships the item directly to the buyer. On most auction sites, the buyers and sellers can leave feedback for each other based on how well the transaction went in order to let others know whether or not to trust their transaction partner.