Rules for protecting yourself when buying a website

I’ve seen several excellent posts about the market in websites recently. This one by Todd Malicoat is very extensive and useful, and also this one by Andy Hagens a few weeks back. One important, even crucial, aspect of the marketplace that didn’t get covered enough is how to protect yourself in a transaction. I thought I’d add a short list of rules I go by when entering a transaction to purchase a site.

Rule #1: Never enter into a transaction over the web for an amount of money that is greater than what you can afford to write off. This is the rule that will save you from bankruptcy, and it applies generally to any transactions not just buying websites. If you can’t afford to lose the money, don’t spend it.

Rule #2: Know who you’re transacting with. Google them. Make sure you have a real name before you proceed, not just a forum handle. Google the name, Google the handle too. Of course you’re going to dig a lot deeper for the $10,000 transaction than you are for the $100 transaction, but a couple minutes of research can save you from pulling your hair out later.

Rule #3: Use an escrow service. Escrow.com, Sedo.com, or whatever, use it. Set a rule for yourself, that any transaction over $X you won’t do it without using escrow. My personal rule is when it gets into four figures, I use escrow. I do make exceptions to that, with people I’ve known and dealt with extensively in the past, of course, but when you’re dealing with someone for the first time, use escrow. A good deal of the fraudsters will back off from you just at the mention of escrow.

Rule #4: Don’t expect Paypal to bail you out. If you file a fraud report, Paypal might find in your favor. If they find in your favor, they will only give you the money back if the money is still in the fraudsters Paypal account. What do you suppose the chances are that the fraudster still has the cash in his Paypal account? Paypal won’t protect you above themselves. If you funded the transaction with credit card, you can charge it back, but expect Paypal to close your account and you won’t be able to use Paypal again.

Rule #5: Don’t expect the forum staff to protect you. I get this a lot as a moderator at Sitepoint. People get ripped off and expect the moderators to help them out. We can’t. I had an interesting exchange a while back with a guy who got ripped off by someone in Germany. He sent me a pm asking for me to help him out. I sent him a tongue-in-cheek reply telling him that I’d be happy to bloody the nose of the fraudster, all he had to do was pay my air fare and hotel expenses to Germany, and ps I don’t like flying coach. I think the message I sent cheered the guy up a bit, as well as explaining to him that the moderators are even more helpless in that situation than he was.

Rule #6: If it seems too good to be true, it probably is. Someone’s trying to sell you a site they say it has a PageRank 7, and makes $500 a month profits, and they only want you to pay them $1000 for the site? Sounds fishy, right? Take it as a warning sign, why would someone want to give you the site for $1000, when they could probably get ten times that on the open market? Obviously, they want to avoid the scrutiny of the public eye. If they put it up for public sale, facts they might wish to remain hidden will come out. Ask a trusted friend to have a look at the sale for you.

I’d love to hear rules that other people use to protect themselves in transactions too! Please comment below.