Wholesale dealer auctions are a great source of merchandise to sell on eBay, but you have to be very, very careful.
In one of my first books when I wrote about wholesale dealer auctions, I said that if you have a desire to be mugged, you can walk in Central Park after midnight or you can attend a wholesale dealer auction.
Wholesale dealer auctions are held various locations around the country but most of them tend to be in the Southeast. Essentially they are auctions of liquidation and surplus merchandise, factory seconds and returns and warranty items. There is no question that there are great bargains and profits to be had. Personally I have purchased goods for as little as 10¢ on the retail dollar and been able to triple or quadruple my money on eBay. But I have also been burned.
As with my article yesterday about buying at small local auctions –this is an area where experience counts (See that post below for more advice about buying at auctions). The only way to get that experience is to dive in –but make sure you aren’t jumping off a diving board into the shallow end of the pool. Here are some tips to help you prevent getting mugged and to insure you only buy profitable merchandise.
- Visit at least one dealer or closeout auction where you just observe. Don’t buy anything at your first auction no matter how tempted you are. Look at the people. See how they dress, how they act, which ones hang out together. Look at what the professional dealers are buying and the prices they pay. Take a small notebook and jot down information to review later. You will be surprised at what you can learn by just watching.
- Look out for shill bidders. If you observe carefully they are actually pretty easy to spot and they tend to congregate together during the breaks
- Never buy a “lot” of boxed mixed merchandise. It has been picked over and all the premium goods have been removed. If the seller or auctioneer swears it hasn’t been picked through (called cherry picking in the trade) – run the other way.
- Buy only new merchandise (they are called “shelf pulls” in the trade). This is typically merchandise that didn’t sell during the season, or didn’t sell well at all. Sometimes that means it was not a saleable product, but it could also mean the store just bought too much of it, or another hotter product came along and the storeowner needed the shelf space.
- Be careful with items described as “returns,” or "store returns." Ask if they are "shelf pulls" or "customer returns." There will almost always be some damaged or non-working items in a “customer returns” lot. It is ok to buy returns from established closeout dealers who will tell you the mixture. If you can buy returns at 10 to 15 cents on the dollar you will probably do okay because there will be enough good stuff mixed with the bad.
- Stay away from freight damaged goods unless you can visually inspect all the products in the box. Some times it’s just the boxes that are damaged. If this is the case, and you can be sure, then go ahead and bid.
- Never buy merchandise you cannot physically and visually inspect. Buying goods at a closeout auction is a case of Caveat Emptor (Buyer Beware).
- Never buy “damaged returns” unless you are capable of repairing the items yourself. If something looks great but is not attracting any bids, leave it alone. There are a lot of professionals at these auctions. If they are not bidding there is usually a reason.
 These goods are usually sealed and you cannot inspect them. If you can inspect them, make sure to remove the items on top and look at the merchandise on the bottom to see if the boxes have been padded with filler.
Most importantly buy what sells. I like to take a cell phone with web access with me so I can look to see if something is actually selling on eBay before I place a bid.
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