AW Daily - Tips & Tactics - After the Auction: Using Escrow

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These days, escrow services have been a hot topic of debate, which has led to a fair amount of misinformation being spread around. With that in mind, we thought we should get back to the basics and look at escrow from top to bottom.

The Basics
At their most basic level, online escrow services protect a buyer and seller during an online transaction. It enables the buyer to send payment for merchandise to a third party so that he or she can verify the item before payment is released, and also protects the seller against fraudulent payments. The escrow service holds payment until the buyer approves or declines the merchandise, or until a specified "inspection period" ends.

That's it--think of escrow as preventive maintenance. It's not an insult that a buyer requests payment via escrow. We all know that fraud is a reality on auction sites. In a transaction without escrow, the buyer is at more risk than the seller. The buyer is required to send payment before he or she can physically inspect the product. Escrow evens the playing field.

The Mechanics
Most online escrow services operate in fairly similar fashions. Escrow begins with the seller when it comes to online auctions. First, the seller needs to specify that he or she accepts payment by escrow in his or her sales policy. Once an auction is completed, the buyer takes over by opting to pay through one of the prominent escrow services. Typically, buyers pay for the use of the escrow service because it is designed to protect them, not the seller.

After agreeing on a service and negotiating who's paying the fees and the length of the buyer's inspection period, the seller sends the merchandise to the buyer. Simultaneously, the buyer sends payment, including service fees, to the escrow company to be held in trust. The escrow service then sends the item to the buyer to inspect. After the buyer approves the item, payment is sent to the seller by the escrow service. Voilá--everybody's safe and happy.

Percentages
Not every escrow service charges the same way, but if you are familiar with how your auction site calculates the final value fees on your sales, then escrow fees will be relatively straightforward. In essence, depending on the arrangement between the buyer and seller, one or the other, or both, pays a percentage of the item's final price. Remember that most escrow services allow either the buyer or seller, or both, to pay escrow fees. This is something you might want to negotiate on a particularly expensive item, such as a loaded computer, via email.

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