Why I recommend you use an escrow service when buying or selling a website

How much can you trust an individual you’ve never seen in person and spoken to only once or twice, and who might live on the other side of the world?

It’s a decision we all need to make when buying and selling web sites. Places like the SitePoint Marketplace are wonderful at bringing buyers and sellers together, but a nasty by-product is that they may also attract small numbers of criminals looking to profit from other people’s ignorance.

Luckily, services exist to help buyers and sellers protect themselves, and while not perfect, go a long way to keep the fraudsters at bay.

Whether you’re a buyer or a seller, it’s important that you’re aware of the options available to you.

You may have seen me on a number of occasions advising web site buyers to use an escrow service for the monetary part of the transaction. Your threshold for requiring escrow services should be at a financial level where it would be painful if the deal turned out to be a fraud. For me, it’s $1,000.

The two services that I’ll discuss because I’m most familiar with, are Escrow.com and Sedo.com. There are other services that are very good and are mentioned regularly in our forum, but these are the two I rely on for my transactions.

Escrow.com is the service I started with and have used more than any other. One of the things I like about Escrow is that it’s more automated than Sedo, and there’s less probability of a transaction stalling because of the service. Of course, that may make it easier to exploit, but I do believe it gives you a high level of security.

The first thing you need to know before setting up a transaction is who’s paying the fee. Escrow.com gives you three options: seller pays, buyer pays, or an even split. Discuss this with the other party before setting up the transaction. Whichever party initiates the transaction will be the one to instruct Escrow (it’s done by selecting the option in the transaction form). You’ll also need to know the email address of the other party, and if they already have an account, be sure to use the address associated with it — or you’ll have to start over.

When you’ve settled that, log in, and start a new transaction. Escrow.com gives you three options for the transaction type: motor vehicle, domain name, and general merchandise. I always select domain name for the obvious reasons, but all this guarantees is that the domain registration is updated with the buyer’s information.

Escrow.com also asks for an inspection period, which may be a short time as domain transfers are generally instant — as long as you’re transferring accounts in the same domain registration service.

Next, you need to enter the domain being transacted. If there are more than one, you just click the Add Domain Name button. And, in the same screen you enter the purchase price. In the final screen, you simply review your choices and agree to the terms.

With Sedo.com, unless the domain is already listed at Sedo, the process is less automated. And, it’s in your best interest usually not to list it in Sedo. Here’s why: the fee for a sale is 10% when the domain is listed in Sedo, otherwise it’s only 3%. This can mean hundreds or thousands of dollars with some of our higher-value transactions.

To start the transaction you need to have an account with your own username at Sedo, know the other party’s account username, and agree upon who’s paying for the fee. You’ll then need to email this information to transfers@sedo.us [3], as well as the domain name, both party’s names and emails, and the price.

Allow one business day for the transaction to be set up. Usually, if you contact them early during regular business hours, they may have the account set up by the end of that day. But if it’s late on Friday, you’ll probably have to wait until Monday morning. It’s a manual process.

The one advantage Sedo has over Escrow is that they’re directly involved in the domain transfer. That is, they’ll request the seller to transfer the domain to them, which they then pass on to the buyer. Escrow.com only verifies that the registration information has changed. This alone may be enough to cause you to switch from Escrow to Sedo.

Next, the service will instruct you how to submit the money. If it’s a significant amount, chances are you’ll bedoing a bank wire, which you’ll need to arrange directly with your bank. With some smaller transactions, you may be able to send the funds to the escrow service via PayPal. Generally, though, escrow is used for larger transactions, so it’s unlikely to be an issue.

If you’re the buyer, you usually have the last call on the transaction. Hopefully everything has gone well and you can signal to the escrow service that you’re satisfied, and they’ll release the funds to the seller. If there’s a hitch — whether you’re the buyer or seller — you should immediately contact the escrow service and have them intervene in the transaction.

I originally wrote this for the SitePoint Market Watch Newsletter.