AT ITS BEST

the online classifieds site Craigslist is an astonishing display of market economics, where bargains disappear moments after they are posted. With that in mind 32-year-old Kenneth Gomez leaped at the opportunity last October when he saw an irresistible real estate deal and got Craigslist at its worst.

The one-bedroom apartment in Manhattan's East Village listed for $900 a month well below average in a neighborhood that defines downtown chic. After Gomez responded to the ad, a woman named Dani McGhie replied to say that Gomez was a good candidate to sublet her apartment, but she was in London and couldn't make it back to the States to hand over the keys. "Obviously, we need a way to complete this deal," she wrote. She proposed that Gomez wire one month's rent as a security deposit, and she would send the keys via two-day shipping. Gomez thought the deal seemed "a little fishy." Before he could sniff around further, he heard back about two other apartments he'd applied for and the replies were almost identical to the one from "Dani." The listings were not bargains they were scams.

As almost everybody knows, Craigslist has blossomed since its founding, 13 years ago, into a utopian online community where anyone can arrange to buy or barter for anything from a pedicure to a Porsche. In the past two years alone, that community has exploded: Every month Craigslist attracts 30 million unique visitors, an audience the size of the entire population of Canada, making it one of the world's 10 most frequented English-language web sites. These users generate eight billion page views a month, and there's no shortage of new material for them to look at: The site posted 250 million listings last year, double the number from 2006.

All that expansion has come at a cost that's getting harder to ignore. Call it ad pollution. The bigger it grows, the more the site becomes a magnet for the sort of opportunist that people come to Craigslist to avoid. Looking to buy a bike? According to the Craigslist ideal, the site should help you make contact with a neighbor who has a Schwinn to sell. But increasingly, you're likely to find the bike listings swamped with what amount to plugs for businesses too cheap to pay for their own advertising pitches you'd delete in a heartbeat if they showed up in your email inbox. There are plenty of less wholesome wares for sale too: Craigslist hosts an ever-growing subculture of cyber-lowlifes peddling drugs, guns and "erotic services," giving some parts of the site the seedy feel of pre-Disney Times Square.

By far the biggest stumbling block for the Craigslist revolution has been the proliferation of scams. Most longtime users know to be wary of online ne'er-do-wells, but Craigslist CEO Jim Buckmaster acknowledges a "rapid escalation" of fraud on the site in the past two years. Bait-and-switch stunts that try to sell phantom rentals or goods may be the most common, but there's no lack of variations on the confidence game. Indeed, sophisticated swindlers find the site an ideal venue for luring people into check-kiting scams and peddling counterfeit gift cards. The upshot of all this unwanted traffic: Fully 25% of Craigslist posts about 65 million ads in 2007 get removed because they violate the site's rules.

Of course, managing growth is a challenge for many boomtowns. What makes Craigslist unusual is that despite its metropolis-size multitudes, it maintains a police force more suited for Mayberry. Founder Craig Newmark's sunny belief in the decency of people shaped the site from the beginning. He encouraged users to abide by the Golden Rule and further fostered the communal vibe by initially opting not to charge for ads or even pursue a profit. "Somehow we built a culture of trust without consciously trying to do it," Newmark says. But the result is that a lot of untrustworthy people have a lot of room to operate. Craigslist has only a dozen staffers who respond to complaints about dicey ads roughly one staffer for every 30 million postings. By comparison eBay (which owns a passive minority stake in Craigslist) assigns more than 2,000 employees to its "trust and safety" team, or one employee for every million listings. The difference is less a matter of resources than philosophy: Craigslist asks its users to police the site themselves by reporting problem ads. But in practice this means the site depends on people who are just looking for an apartment or a new couch to also serve as cops on the beat.

Gomez was willing to play Barney Fife for Craigslist. After he got wise to the London scam, he posted a warning on the site for other apartment shoppers. He soon received an email telling him that his post had been taken off the site at the request of other users. He reposted the warning, and it promptly got yanked again. Gomez's theory? The scammers had booted it off. After all, in the Craigslist democracy, even felons get to vote.

Utopia Gets Crowded

All of Craigslist's qualities, good and bad, have reached a magnitude its founder never expected. The oft-told story is that in 1995 the self-described nerd Newmark emailed his friends a list of upcoming events in the San Francisco Bay Area. They found it useful, and from there Craigslist grew into a clearinghouse for all sorts of stuff: jobs, apartments, used furniture. Like eBay it functions as an online flea market, but with three significant differences. Almost all ads on Craigslist are free. The site doesn't get a cut of any transaction. And the site serves only as the matchmaker most transactions happen offline. For fans the street-corner exchanges and living room negotiations supply much of the site's appeal: Each transaction injects a dose of serendipity into a world dominated by chain stores and automated online shopping. Its freewheeling and often X-rated personals section has become a cultural sensation too, and the job board boasts more ads than Monster.com and CareerBuilder combined. But the "for sale" category remains the most popular, garnering close to 40% of all postings and that's where much of the trouble originates.

The traits that users love the free listings, the human touch and the large number of eager buyers and sellers also make Craigslist a "perfect" hunting ground for scam artists, says John Otero, a former New York City cyber-crime detective who teaches computer security at St. John's University. It is especially attractive to "social engineers," swindlers who manipulate their victims through conversations or email, often involving a sob story or the promise of future riches. Jacqueline Macias of San Diego got conned out of $450 while trying to get Hannah Montana concert tickets for her daughter; the seller claimed she was unloading the tickets so she could attend her mother's funeral. ("It seems like half of Craigslist is scams," Macias now complains.) The scams follow two primary patterns: In one, scammers dupe buyers into paying for a product or service that never gets delivered. The other, which targets sellers, begins when con artists pay for an item with a fake check or money order made out for more than what was owed; the "buyer" then asks the seller to refund the difference. Last February the U.S. Postal Service seized $2.1 billion in counterfeit checks being used by teams of crooks targeting users of Craigslist, among other sites.

For some of Craigslist's communitarian fans, even legitimate ads are becoming a hassle, as businesses jostle with the rummage-sale crowd for listing space. In some categories the pros have practically taken over: During one recent visit we found that 13 of the first 20 ads for New York Giants football tickets were posted by brokers, many of whom merely offered links to their web sites. Vacation-rental listings in hot spots like Las Vegas, Miami and Hawaii are similarly overrun with travel agents and time-share companies. More than ever, someone looking to make a friendly deal with a fellow citizen will find himself outside Craigslist's city limits, going head-to-head with brokers and salesmen trying to exact the highest price. Of course, it's hard to blame the pros for going where the customers are. At Redfin, the discount real estate brokerage, agents post every listing at least once a week on Craigslist; a spokesperson says the company gets more referral traffic via that route than from any real estate site where it advertises.

These ads fall into a gray area in the Craigslist code of conduct. Businesses are supposed to advertise only in the "services offered" category, and any ads elsewhere on the site deemed "too commercial" by users are subject to removal. Those guidelines clearly haven't worked, however, and in a concession, the site recently began separating "dealer" ads for cars and furniture into their own subcategory. It also now charges for job listings in its 10 biggest markets and for real estate ads in New York City, producing a tidy profit on revenue that consulting firm Classified Intelligence estimates at $50 million. Ben Schachter, an Internet analyst with UBS, says the company could be a multibillion-dollar business if it wanted, but Craigslist's anticorporate model remains: More than 99% of its ads are free.

Flagging the Bad Guys

Not surprisingly, you won't find Craigslist headquarters in a huge downtown tower; it runs on a relative shoestring in San Francisco, out of a Victorian house where cleaning supplies and paper towels bought in bulk are stacked chest-high in the employee bathroom. There, CEO Buckmaster is the man responsible for building whatever security measures Craigslist has. A 6-foot-8 former hippie who has never owned a car, Buckmaster was hired as the site's lead programmer in 1999 through an ad on Craigslist, naturally and he personally developed the flagging system that serves as the site's primary defense against fraud. Back then the site received hundreds of new ads each day, not millions, but the problem was the same: Staffers didn't have time to review every ad.

Buckmaster's system allows users to report, or "flag," inappropriate ads with a single click. If the site's software registers enough flags for an ad Buckmaster won't say exactly how many it takes it is deleted. Ads can be flagged for many reasons, but 98% are axed because they violate the site's terms of use: Usually, this means they include prohibited items, like firearms and illegal drugs, or sound suspiciously like scams. Buckmaster admits the system isn't perfect, but he wants less staff involvement in policing, not more. His reasoning: Scammers inevitably find their way around the roadblocks thrown up by the site's techies. "It's like grasping at air," he says. There have been some changes: Visitors now find a detailed checklist for avoiding scams at the top of almost every page, for example. In general, though, Buckmaster remains steadfast in his belief in community policing.

As a result much of the safety of the marketplace lies in the hands of volunteer cops, people like Jessica Ferraro, who's 24 years old. For the Gaithersburg, Md., resident, Craigslist truly is an online village: Through it she's found hand-me-down clothes for her two-year-old daughter, she adopted a rescued Shiba Inu, and she once traded a wireless router for a pumpkin pie. She regards flagging as her civic duty; she says the proliferating con games and ads "go against everything Craigslist stands for." She's nothing if not diligent: One recent evening, working on a laptop from the living room sofa while her daughter plays with blocks at her feet, Ferraro points out scams she's found, including a new breed in which sellers peddle stolen, counterfeit or expired gift cards. She finds several dozen in an hour, but then her safety shift is over dinner is almost ready, and it's time to put the little one to bed. As dedicated as she is, Ferraro seldom puts in more than two hours of patrol in a day.

Ferraro and her fellow true believers have an impact, but as the site's traffic multiplies, their efforts are often too little, too late. Most harmful posts are removed only after they've been up long enough to ensnare multiple users. Current law, upheld by a ruling in a 2006 federal lawsuit, establishes web sites as "carriers" of information and not "publishers," clearing them of liability for most of their content. That means consumers would have as much luck suing Craigslist over a bad listing as they would suing the phone company over crank calls. This immunity hasn't stopped Internet giants like Amazon, eBay and Yahoo from trumpeting their efforts to protect consumers. But it gives Craigslist legal justification for its hands-off approach and the site, which isn't as concerned as its peers with earning money, has little incentive to step up its policing.

That's not much solace to those who get stung. The flagging system "is simply not enough," says Shannon Christmas, a Harvard grad who was among two dozen people to fall for one woman's apartment scam. Christmas wants the company to create a version of eBay's user ratings and possibly even list the names, aliases and email addresses of known swindlers. Now that Craigslist is the web's biggest classifieds site, its laissez-faire approach is "sort of a cop-out," agrees Greg Sterling, Internet analyst and founder of Sterling Market Intelligence. And Donna Hoffman, codirector of the Sloan Center for Internet Retailing at the University of California, Riverside, warns that users will defect to other web sites if Craigslist does not get a handle on the rampant fraud. "If enough people get burned, it will become increasingly irrelevant, she says.

The possibility of that scenario is encouraging more competitors to vie for Craigslist's crown. Last May, Facebook, the 50 million-member social networking site, added a marketplace section where members can post items they would like to buy and sell. Then there's Quentin English, a British expatriate whose New York-centric web site, Quentin's Friends, restricts access to members who must pledge allegiance to a set of values including courtesy, respect and generosity. English also charges his roughly 1,600 members $50 per year, which pays for his web development costs he is expanding into Los Angeles and Miami this year and one employee. By keeping his community small, he is able to monitor every post before it is published. "The people who join really do care as much about helping other people as what they will get out of it," he says.

Then again, Quentin's Friends gets only about 50 posts on its busiest days, and good luck finding an antique coffee table or a used Guitar Hero videogame in a community that small. That's why not everyone thinks the Craigslist model is broken. When eBay launched its own classified-ads site last June, it mimicked Craigslist almost exactly, down to the flagging system. The name, Kijiji, even means "village" in Swahili. It seems the auction giant is trying to create its own Mayberry.

Our Search on Craigslist

Thanks to Craigslist we got a free apartment in San Francisco for a weekend. And thanks to Craigslist we almost didn't get there.

Intrigued by claims from fans that you could live your whole life on the site, we decided to spend a month depending on Craigslist for the clothes on our back (winter coat from an American Express executive: $40 after haggling), transportation (man with a van: $75) and even the roof over our head (more on that later). Early on we learned that the site excels at the neighbor-to-neighbor deals that have made it famous. In short order we managed to unload two end tables (Mom loved them, we didn't) to a local couple for the princely sum of $30. When a friend needed to move out of her apartment, Craigslist delivered a shaggy-haired rock percussionist who was happy to help. Kind strangers even offered to do our grocery shopping for a modest fee.

And that's just the small stuff. We soon encountered a more upscale Craigslist, where big-ticket items go on the block every day a $4 million Trump condo, a 2003 Ferrari ($180,000, CD player included) and even paintings by Diego Rivera and Toulouse-Lautrec. But we also learned one of Craigslist's harsher lessons: The higher the stakes, the greater the risk of a scam. When we pursued a listing for a primo West Village apartment, we spoke with an "owner" in London who gracefully answered our questions while angling for our $1,300 deposit. But a little sleuthing revealed that the apartment was actually owned by a prominent designer who had no intention of subletting. We notified Craigslist, which referred the case to the Manhattan district attorney's office something the site often does but nothing came of that.

We had better luck with that San Francisco apartment, which we found by connecting with its occupant through the "housing swap" category. A few clicks away we scored a lift to the airport: A woman called Nefertiti promised that her husband would take us in his "older black Maxima" for $20. That's a great deal, since a cab is typically $45 except that Nefertiti stood us up, leaving us scrambling for a ride. It all reinforced what Craigslist CEO Jim Buckmaster told us: "It's hard for the system to be perfect when people are not perfect."