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When should you
use escrow?
Buyers
•
When you are concerned about a
seller's low feedback rating.
•
During a high ticket item deal
requiring you to send a lot of cash.
•
When your zero or low feedback level
might otherwise prevent closing a deal that you want to complete.
Sellers
•
If your buyer insists on it, and you really want to
close the deal.
•
When selling an expensive item that you don't want to risk losing money on.
• To attract more buyers during highly specialized or lower
demand auctions.
Warning:
Both parties in an escrow deal
must watch out for for a specific form of
auction fraud that we call the
Escrow Scam.
Not a very catchy nickname,
but it is a nasty con: the escrow house turns out to be a bogus website, and
many buyers and sellers get burned until the authorities catch on and close
down the illegal site.
How to use Escrow for Online Auction Deals
In most circumstances, escrow is a
safe and viable method
of online payment. The way it works is as follows: Both buyer and
seller work through the escrow house, who simply helps facilitate the exchange.
The buyer sends his money to the
escrow house, who in turn holds it until the deal is complete. The seller then sends the item to the buyer, and after the buyer
inspects and approves their purchase, they contact the escrow website and give the thumbs up.
Once the buyer gives their approval, the escrow service sends the seller the
payment. If the buyer is not satisfied with the merchandise, they return
it to the seller, and the escrow house issues them a refund.
Sounds pretty efficient... piece
of cake, right? Well, there are some
pros and cons to consider first.
Using escrow for auction payments
is generally more favorable to buyers, as there is more hassle, delay and risk
of returns for sellers when a third party is involved in the deal, no matter how
honest and reliable the escrow service happens to be. Also, although
escrow is designed to minimize fraud, there are still risks for buyers & sellers
(see Auction Fraud: the Escrow Scam).
Many sellers do not offer
escrow, due to the fact that payments generally take longer and their is
more risk that their item will be returned. Plus, they are the last
part of the equation in the deal, and receive their money only after
everyone else is satisfied. However, sellers may get more bids when
they offer escrow, as some bidders will only buy from sellers that offer
this service. In short,
escrow can be a useful tool to both parties under the right set of
circumstances: when one of the parties in a deal is new to online auctions,
when an auction user has low feedback or several
negatives, or during a
large payment deal.
Seller Tip:
We generally would recommend an
online payment service like
Paypal for most deals before turning to an escrow house. Since
escrow is not used by most auction users, if your'e an established seller
with a high feedback rating, you should not feel that
you have to offer it.
Most buyers will trust you
when they see that you have lots of
positive feedback. Thus, you are
entitled to a little more leeway in requiring that your favorite payment
method be used... That reputation you worked so hard to earn does buy you
some credibility in the auction community- you may as well bank on it
from time to time.
However, if you want to get more bids, you really should consider accepting
every form of payment on the planet that you are comfortable with: escrow,
online payments,
credit cards, gold,
silver, pesos, rupees, clams, etc.
The Pros & Cons of
Using Escrow
Seller
Positives: More
security when dealing with unknown customers with low or zero
feedback.
Offering escrow means getting some bids from buyers who may
not have otherwise bid on a big ticket item- More
payment options almost always means more
bidders. Seller Negatives:
More expense involved in the transaction, as the escrow house
will charge a fee for its services.
More chances for error or delay as a third party is involved
in the deal. Buyer
approval process means sellers typically must wait longer for payment.
Escrow should only be used for big payment deals where security is more
important than speed.
Buyers may develop buyer remorse, and return the item- Since the money is
still in the hands of the escrow house, some buyers are more willing to try
and back out than if the seller had already received payment.
Buyers may return the item damaged, then it's the buyers word
against the sellers, insurance claims, paperwork hassles with postal
service, etc. The buyer
may wait until just before the return period expires to ship the goods back
to the seller- This means more fees and paperwork for the seller to re-list
the item with the auction house, and lost time.
Less privacy in transaction as escrow is aware of details.
Buyer Positives:
This is the main reason some buyers demand using escrow:
there is far less risk of fraud. Since the buyer gets to inspect the
auction item(s) before their money is transferred to seller, the seller must
deliver the item as advertised and in a timely fashion.
If the buyer feels the item is
misrepresented or fake, they can return it and get their money back far
easier than if they were dealing directly with a dishonest seller.
Escrow offers buyers who have small feedback ratings to
purchase from some sellers who might have otherwise been nervous about
dealing with them. This means more access to high ticket auction items
for newer auction users.
Buyer
Negatives:
More time involved in process to receive item.
More expense involved for escrow; most sellers will expect
buyer to cover this extra fee.
Less privacy in transaction as escrow agent is aware of
auction details - check policies concerning information disclosure.
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