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BOOK DEALERS

 Say NO to Escrow! Say NO to Escrow

© 1999-2002 by Tessa Hebert, all right reserved.


This purpose of this article is to provide information to those considering the use of an escrow service in an auction transaction and  to explain why many sellers choose not to use an escrow service in their auction transactions.

2-21-01 Note:  This article has not been recently updated, except for the note below about I-Escrow's name change to Tradenable.


DEFINITION OF ESCROW:

An escrow service acts as a third party in a transaction, representing both the buyer and the seller, providing them with a safe place to keep the purchase money in escrow until the buyer receives the item and is satisfied.

This is the process of a transaction using an escrow service:

  1. The buyer sends the payment to the escrow service.
  2. The escrow service notifies the seller that the payment has been received.
  3. The seller sends the item to the buyer.
  4. The buyer notifies the escrow service that the item has been received and is satisfactory.
  5. The escrow service pays the seller.
Using an escrow service may help to complete the transaction when a large amount of money is involved and the buyer and seller do not know each other well enough to trust that the other party will complete the transaction.

EBAY AND I-ESCROW:

February/2001 News:

I-Escrow has changed its name to Tradenable.  Please click here to see eBay's help page about Tradenable:
 http://pages.ebay.com/help/community/escrow.html
 

eBay offers users the escrow services of I-Escrow, a California company.  I-Escrow's business information is available on its site in an article titled:   About I-Escrow.

I-Escrow is required by California law to be licensed with the state, prove financial stability to the state, and provide a surety bond to the state.

Although it appears that eBay is providing its users with a safe way to conduct business with an escrow service, many sellers have recently expressed how unhappy they are that eBay promotes the use of an escrow service.

eBay's FAQ about I-Escrow includes these supposed positive benefits of using I-Escrow:

Buyers:
  1. Can receive and inspect the merchandise before I-Escrow sends the payment to the seller.
  2. Can send credit card information to a trusted source rather than a stranger.
    Sellers:
     
    1. Have the ability to sell to buyers who prefer paying by credit cards.
    2. Have a great way to overcome a buyer's hesitation in dealing with an unknown source or in purchasing an expensive item.
At first glance, these seem like very positive things.  Now let's take a closer look at these supposed positives, which may not benefit either the buyer or the seller.

Buyer's Reason #1 to Use Escrow:   "Can receive and inspect the merchandise before escrow sends the payment to the seller."

This option is called "bid on approval" by many sellers, because it allows the buyer to return an item after inspection. This option is in direct violation of many sellers' policies.  Sellers who are very careful to completely describe their items at auction and include pictures of their items do not want to give buyers a chance to have "buyer's remorse" and return the items without a valid reason.  The seller who wants "all sales to be final" cannot abide by this option.

Ideally, the seller is honest and reliable, the item is completely and accurately described in the auction listing, and all potential bidders have ample time to request further information from the seller during the auction.  At the point the auction ends, the seller expects the buyer to buy "as is."

The seller also wants to have prompt receipt of the buyer's payment.  The use of an escrow service certainly delays the seller's receipt of payment.

While this option may protect the buyer from an unscrupulous seller who does not accurately describe the item, it does NOT protect the seller from unscrupulous buyers who return items on a whim or because of "buyer's remorse."

I-Escrow's solution to preventing unnecessary returns is simply not acceptable to most sellers, and many buyers may not want to pay the costs required by I-Escrow in the event of a return.  (See "Cost of Return" below).

Buyer's Reason #2 to Use Escrow:  "Can send credit card information to a trusted source rather than a stranger."

This option seems to imply that the eBay customer, who is the seller, is a stranger who cannot be trusted.

Many sellers rely on their reputations and past histories in business to reassure potential and future buyers of their honesty, trustworthiness, and abilities to complete a transaction.  Any implication of a seller's dishonesty or lack of good business ethics can be deadly to a seller's business.

eBay sellers also rely on their positive feedback to reassure buyers about their honesty and trustworthiness.  While eBay's feedback system may be flawed in that it allows "feedback padding," most sellers on eBay are trustworthy and honest and have worked very hard to earn their positive feedback ratings.

eBay's apparent promotion of the idea that buyers can trust an escrow service rather than an eBay seller is insulting to many eBay sellers.

Sellers pay eBay for the privilege of using its auctions to sell their items.  The seller is therefore eBay's customer.  eBay seems to be implying that its customers are not to be trusted.

It is my opinion that it would be far better for eBay to protect its users against feedback padding and for eBay to use user-registration validation to provide its users with safety and satisfaction in their auction transactions.  While the use of an escrow service may facilitate the satisfactory completion of the transaction, it does nothing to eliminate some of the problems eBay users face, and the use of an escrow service may create its own set of problems.

Seller's Reason #1 to Use Escrow:  "Have the ability to sell to buyers who prefer paying by credit cards."

This seems like a positive benefit until one considers that any seller who wishes to accept credit cards can do so by obtaining such privileges independently of any escrow service.

Credit card usage may be very convenient to buyers, but may NOT benefit a seller at all.

The use of a credit card allows the buyer to "bid on approval" and cancel the charge after receiving the item.  This allows the buyer to have "buyer's remorse" and return the item.

Many sellers have refused to offer credit card use because of the fees charged by credit card companies.  Indirectly, all buyers pay more when a seller accepts credit cards, because the seller's overhead includes the charges paid to the credit card companies for the ability to accept credit cards.   Many sellers have opted to keep their costs lower by not accepting credit cards, thus allowing them to sell their items for a lower price.

Seller's Reason #2 to Use Escrow:  "Have a great way to overcome a buyer's hesitation in dealing with an unknown source or in purchasing an expensive item."

Once again, we seem to have an implication that the seller is not to be trusted, by the use of the words "dealing with an unknown source."  And once again, the buyer should be able to rely on the seller's feedback file on eBay.  Also, prior to bidding, the buyer can contact the seller to ask for business references and/or to obtain answers to any questions the buyer has about the item at auction.

It would be far better for eBay to provide user-registration validation for its sellers, so that none of eBay's sellers are "unknown sources" and so that eBay's bidders could trust sending a large sum of money to an eBay seller.

ADVANTAGES OF USING AN ESCROW SERVICE:

  1. It might inspire more buyer confidence about being able to satisfactorily complete the sale.
  2. It does provide the convenience of allowing a buyer to use a credit card when the seller does not accept credit cards.
DISADVANTAGES TO THE SELLER

Many sellers do not want to use escrow because it does NOT increase the likelihood of completing the sale in most cases, and it might imply that the seller is not to be considered trustworthy or honest.

Also, there are these factors which most sellers consider to be totally unacceptable:

  1. Cost.  The cost of escrow is 5% of the sales price or winning bid amount.  This may not sound like a lot of money, but 5% is $5.00 on every $100.00 of the sales price.  Even though the buyer usually pays this cost, sellers know that the buyer will factor this cost with the cost of the amount bid on the item, thus any seller agreeing to the use of escrow can expect to earn 5% less than the amount expected.  The seller is already paying eBay's Listing and Final Value Fees, plus the other costs of conducting a business.  This is just one more way to reduce the seller's profit and increase expenses of selling an item on eBay.
  2. Delay in Receiving Payment.  The use of an escrow service unnecessarily delays the seller's receiving payment.  The seller does not receive payment until after the buyer receives the item, plus the seller has to wait for the escrow service to issue and deliver the payment. This is in direct opposition to most sellers' policies that payment must be received before the item is delivered.
  3. Damage During the Return Shipment.  The item can be damaged during the return shipment.  The seller could receive a returned item which is damaged and thus, worth a lot less than it was originally.  While I-Escrow claims to offer insurance on shipments, this may not be an acceptable option to many sellers.
  4. Substitution of Returned Items.  The buyer can return an item which is not the seller's.  This is a growing problem of internet sales, and while it is not exclusive to escrow sales, the option of buyer's return of the item does increase the likelihood of its happening.
  5. Damage by Buyer.  The item could become damaged during the time the buyer is inspecting it.  There is no insurance for the seller if the item gets damaged during the time the item is in the buyer's possession.
DISADVANTAGES TO THE BUYER:
  1. Cost.  Most sellers will expect the buyer to pay all costs, because almost all of the benefits of using an escrow service are for the buyer.  Even if the seller pays some or all of the costs, those cost will most likely be included as hidden costs in the seller's minimum bid or reserve amount in the auction.
  2. Additional Cost of Providing Trackable Delivery.  The seller is required to ship by a trackable delivery method.  This may be as inexpensive as the post office's delivery confirmation, but it is an additional cost which most likely will be directly or indirectly paid by the buyer.
  3. Cost of Return:  As stated in eBay's FAQ, the buyer who returns the item is required to pay BOTH the return shipping cost and the Escrow Fee, plus the seller is allowed to stipulate that the original shipping fee be non-refundable.
  4. Delay in Receiving Refund:  The escrow service requires that the item be returned first.  Then the escrow service must wait for permission from the seller to issue a refund.  The process of the escrow service's issuance of a refund may be several days to a week longer than if the refund came directly from the seller.
  5. Possibility of Not Receiving Refund:  The escrow service will NOT refund until the seller receives the item and inspects it for damage.  A seller could claim damage and refuse to agree to the refund.
OPTIONS OTHER THAN ESCROW FOR SELLERS:
  1. Provide complete and accurate description of the item in the auction listing.
  2. Be friendly and respond promptly to inquiries from potential bidders.
  3. Offer a money-back guarantee or guarantee that your item is accurately and completely described in the listing.
  4. Deal promptly and efficiently with customer complaints, resolving the issue to your customer's satisfaction by using good communication and diplomatic techniques and skills.
  5. Write to eBay at:  suggest@ebay.com and request that user-registration verification be implemented.  Suggest that if eBay verified the user registration of its sellers and buyers, most problems in completing eBay transactions would be completely eliminated.
OPTIONS OTHER THAN ESCROW FOR BUYERS:
  1. Get to know the seller.  Read the seller's feedback file on eBay.  Deal only with those sellers whose feedback reflects honesty and fair-play in transactions.
  2. Realize that most sellers sell an item at auction with an " As Is" expectation.  Be prepared to accept delivery of an item in the same condition as is stated in its description in the auction.  Read the auction description of the item very carefully.  Ask questions of the seller before placing a bid.  Do not bid on items which are not completely described.
  3. Request that the seller provide insurance on the delivery of the item.  The post office provides very inexpensive insurance on all mailings.
  4. Write to eBay at suggest@ebay.com and request that user-registration verification be implemented.  Suggest that if eBay verified the user registration of its sellers and buyers, most fraud with eBay transactions would be completely eliminated.
  5. Realize that if you are not satisfied with the item, most honest and reputable sellers will make every attempt to reach an agreeable conclusion of the transaction with you.
HOW YOU CAN SAY NO TO ESCROW:
  1. Refuse to use an escrow service to complete your auctions, whether you're a buyer or a seller.
  2. Send an e-mail to eBay and complain, by writing to support@ebay.com.  List your reasons why you do NOT want to use an escrow service.  Point out the problems associated with the use of an escrow service.  Make suggestions about alternative ways to resolve problems, other than the use of an escrow service.  Recommend that eBay enact other methods to inspire trust in its sellers.
DEFINITIONS:

As Is:  A condition of the sale in which the buyer is expected to accept the item in its described condition, rather than any other expectations about the item's condition.

Bid on Approval:  An option which allows the winning to return the item after inspection, for a refund.

Bidding Fever:  A phenomenon of intense excitement while bidding, which often causes bidders to bid beyond any reasonable level of expectation, and/or beyond the actual value of the item.

Buyer's Remorse:  The bidder's regret about having won an auction and refusal to complete the transaction, unrelated to any defect of the item or any fault of the seller.  For instance, the bidder does not want to complete the transaction because the bidder believes he bid too high and the item is not worth that much, or the bidder found the item cheaper somewhere else.

Escrow:  Money deposited with a third party which are to be transferred to the seller when certain conditions are met.

Escrow Service:  The company where the purchase money is deposited and kept until the buyer receives the item; a third party in the transaction, which acts as the middle man between the buyer and the seller to insure a safe and satisfactory completion of the transaction.

Feedback Padding:  Bogus feedback in a user's feedback file; may also include any feedback unrelated to a buy/sale transaction on that auction site.  For instance, feedback which states, "An asset to eBay, very helpful person," may have nothing to do with the user's past performance in a transaction.

User-Registration Validation:  The verification all user-registration information.  This provides users with the guarantee that the other user's name, address, and phone number are correct.  While it does not guarantee honesty or reliability, it does guarantee that a user at least has correct information on another user involved in a transaction.
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HELP ARTICLES:
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This article © 1999-2002 by Tessa Hebert
Revised 05-20-02
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