Flippin’ Fridays: How To Avoid Being Scammed By Fraudulent Buyers
Fri, Aug 22, 2008
Two of the most frequently asked questions that I see in discussions about flipping websites are “What type of payment method is the safest to use?”, and How do I avoid being scammed?“. More often than not, these questions are being asked by sellers who are worried about having their website stolen from them by a fraudulent buyer after the deal has been done. Unfortunately, it happens more often than you’d think.
The good news is, there are several ways that a seller can significantly increase the chances of avoiding a scammer and protect themselves from losing their site and their money.
Since this is crucial information to have for budding website flippers, I thought it would be a perfect topic to kick off Flippin’ Fridays.
Choosing Which Payment Method To Use: PayPal Vs. Escrow
My experience with PayPal has been nothing less than stellar since 2001. I’ve had thousands of transactions over the years, as both a buyer and a seller, and I’ve been extremely fortunate to never have been scammed or experience any major problems that wasn’t handled promptly and professionally.
Also, in my short run as a developing website flipper, I’ve sold 9 successful website flips and used PayPal for 8 of those transactions. That being said, If you were to ask me what method I recommend as the safest to sell your websites, I would have to advise you to use an Escrow service.
Why Not PayPal?
Up until I started flipping websites, the bulk of my PayPal transactions were tangible items, and there’s a protection policy in place for traceable items that have been shipped, (basically meaning that if you can provide proof to PayPal that the buyer received the item, they will help you work things out). Unfortunately, PayPal does not provide any protection against fraudulent buyers taking you for a ride after you sell them a website. What do I mean by that?
Let’s say I sold a site to Jimmy for $1,000. Since it’s typical to receive funds before you receive your website and domain, Jimmy sent the funds to me first.
After the payment was confirmed and the money was in my PayPal account, I sent Jimmy the website files and transferred the domain to him.
Seems safe, right? I have Jimmy’s money in my PayPal account!
Well, unfortunately for me, Jimmy was a scammer and disputed the charges, claiming he was unhappy with the transaction and did not receive what he had paid for.
Since there is no protection for me selling a non-tangible item, PayPal refunds Jimmy’s money.
Jimmy now has the website, the domain and the money.
So, although I have had success with PayPal for man years, knowing that it is possible for this to happen to you at PayPal that easily, I have to recommend not using them to sell your sites unless their policies change.
Why Do So Many Sellers Still Use PayPal To Sell Websites If It Is Unsafe?
Many sellers still use PayPal regularly, especially for smaller amounts (very common under $1,000 in my experience). Often you will run into buyers who don’t want to go through the Escrow process for a small transaction.
Your decision really comes down to trust between you and the buyer. If you feel secure with the buyer, then by all means, use PayPal. I like it as a payment processor, it’s just not as safe as an escrow service for selling websites.
Ultimately, there are way more legit buyers than there are scammers, so if you are using PayPal, make sure you take every precaution possible to screen your buyers.
What Makes An Escrow Service Safer?
An escrow service acts as a third party to protect both the buyer and the seller from being scammed. Basically there are 5 simple steps
- Buyer and seller log in to their escrow account and agree to the terms of the transaction in question
- The buyer makes a payment to the escrow company
- After the escrow company verifies that payment has been received, the seller beings the transfer of domain/website files to the buyer.
- Buyer indicates to escrow company that they have received the domain/website
- The seller is paid by the escrow company.
The only drawback is the buyer complainng and not wanting to register (if the buyer hasn’t already) and going through the process. It can take quite a bit longer than two people doing a quick PayPal transaction and domain transfer. The PayPal way can be as fast as 10-15 minutes in some cases. However, an escrow service is much safer for both parties, so you have to decide if it’s worth the extra time and effort.
Is Escrow 100% Safe?
Like any company you deal with, make sure you know all the details before you use the service. Never assuming that you are 100% safe is a good way to increase your chances of being 100% safe.
One tip to take with you if you’re using an escrow service is to watch for a fraudulent email telling you that payment has been accepted and you can transfer the domain. Always log into your service by typing the domain name in the browser to double check and verify.
Which Escrow Service Should I Use?
Escrow.com is the most popular one, but they are not the only game in town. I’ve read good things about Sedo and Moniker escrow services as well.
Escrow.com process overview and fee calulator
Making The Most Of SitePoint Features
If you are planning to auction off your site, then SitePoint Marketplace is where you should be selling. They have the market dominated as far as number of buyers and regular action. They also currently have the best auction features, many of which can help you screen your buyers.
- The ability to approve or reject bids
You have the option to approve or reject any bid, so use that to your advantage. Never choose to auto-accept them until you take a look at the buyer’s feedback and/or any info you want to find out. - BIN approval
When you create your auction, you have a choice of whether or not to set a BIN (But It Now) price. If you choose a BIN, you will then get a drop down field to enter your PayPal address if you wish to accept PayPal.Even if you have decided to accept PayPal, do not fill in your PayPal address!
If you leave the PayPal address field empty, then a bid at the BIN price will still have to be approved or rejected by you.
If you fill in your PayPal address, the BIN would be automatically accepted without your approval!
You may want time (you have 72 hours to accept or reject a BIN bid) to run a check on a buyer before you accept. - Require Phone Verification
SitePoint just implemented a feature for sellers that allow you to choose that any bidders must require phone verification. This is one more step you can take toward weeding out the scammers.
Conduct Your Own Due Diligence
A good rule of thumb is to take as many precautions as possible regardless of which marketplace or payment method you are using. Here are a few tips on conducting a little over your own due diligence:
- Strike up a conversation. Email, PM a quick hello to your potential buyer and thank them for the bid. Ask them if they have any questions about the site. You can gain a lot from a converstion, even in email. If any warning signs go off, then proceed with caution and take further steps.
- No Feedback On SitePoint? If a buyer has no feedback on SitePoint, it doesn’t mean they’re a scammer. However, you have no proff at all that they’re not either. Politely ask them if they have purchased sites before anywhere else and if the have feedback on that site. If not, you could also ask if the have ebay feedback or any other references that they could give.
- Investigate! I’ll usually do a quick search on anyone who places a bid on my auction that doesn’t have any feedback. Buyers and sellers will typically have many accounts on other forums (i.e; Digital Point), and will often use the same name on many accounts. You can do a quick Google search, and a search on a few popular marketplace forums to see if there’s any shady behaviour.
- Talk About Escrow. If you chose several methods of payment, or even if you chose to accept PayPal only, ask your buyer if she’d have a problem going through escrow. Scammers will always try and redirect you from an escrow transaction.
In Summary
This certainly isn’t the most enjoyable part of website flipping, but it’s necessary knowledge. The worst thing that can happen to you is that you take a stab at flipping a website and get ripped off your first time out. Nobody wants that to happen. So basically, be smart, take all the precautions possible and soak up all the information that you can on a regular basis. Policies, auction features, and other thing related to the business change on a regular basis, so you have to stay on your toes.
As I mentioned above, for every scammer, there’s a ton of great people who are legit buyers that will make the transaction extremely easy for you. I’ve already met quite a few great people who I stay in touch with just from the few deals that I’ve done so far. So, do it, and have fun!
If anyone has anything to add, please feel free to do so in the comments. I’m always looking for more tips to make things run smoother. Also, if you have any bad experiences selling that you think people could learn from, feel free to share those as well.
I hope I have at least answered a few questions that some of you may have had.
Good Flippin’ Luck!
Jay
Tags: website flipping
August 22nd, 2008 at 6:37 pm
You pretty much answered a few questions i posted earlier today at Bryan’s forum.
I had asked what should i do immediately upon receiving a bid on a flip. From your article i gather an email is in order to feel the bidder out.
Perhaps if i had sent an email or PM to the bidder on Bloggers Search, i would have found out from the get go, he/she was not a serious bidder.
I really want to sell G34 Media, but am working on figuring out its niche. Is G34 a marketing, media, or blogging tips blog? Plus i want to sell it for 4 figures, so i need to set it up well.
I think with a few minor tweaks (and your excellent sales page writing skills), i can do it.
What say you on my G34 Media blog flip?
Missys last blog post..Want To Know ONE Surefire Method To Get High PR Backlinks?
August 22nd, 2008 at 7:05 pm
@Missy: Ah, yes. Bryan is going to be very busy today flipping 5 sites in 24 hours! lol
As for emailing your bidders, I don’t do it “only” to feel them out. Striking up a conversation and offering to answer any questions that they might have will also build their confidence in you as a seller.
Even if they end up not purchasing this site, they might remember the friendly conversation you had with them and check out (and bid on) future auctions of yours.
There’s countless benefits to open communication.
Thanks for the compliment on my sales pages. I’ve had a few people ask me advice after my last couple of auctions. I’m flattered, but I still have a lot to learn. I think what helps me sell is that I don’t BS and sugarcoat things. Obviously, I highlight the positives and the potential using a “sales perspective”, but I also try to go the extra mile with honesty and cover as many answers to questions I think they might have about the site.
I’m not sure on the sale of your blog. Hit me up with all the stats!
I assume you meant the one blog and not your whole network, correct?
Cheers!
Jay
Jays last blog post..Flippin’ Fridays: How To Avoid Being Scammed By Fraudulent Buyers
August 22nd, 2008 at 8:33 pm
2 Jay: Great article… I htink that is two for two this week when we wrote similar topics. Great minds think alike.
Would you mind if I added a snippet on my post about your article here? I think it might be good to have your article added in since mine was all about being a newbie to the gig.
Informative article and confirms almost all of what I’ve learned in the past two weeks. Thanks for writing it! - Peace
Piss Biscuits last blog post..What I’ve learned from My SitePoint Auctions
August 22nd, 2008 at 8:34 pm
PS: Stumbled it.
Piss Biscuits last blog post..What I’ve learned from My SitePoint Auctions
August 22nd, 2008 at 9:00 pm
@Piss Biscuit: Hey man. No prob on using a snippet, especially if you’re linking back to me. I could use a couple piss visits.
Glad you liked it.
Yours is very informative as well. Newbies are going to be kickin’ ass in no time!
Cheers!
Jay
August 23rd, 2008 at 5:21 am
Awesome post Jay! I personally prefer PayPal when I sell websites for less than $1k (so as a lot of people). I use Escrow.com when the value is higher — not only for protection but to escape the fees.
I usually ask the buyer to pay all the fees.
Lucass last blog post..How I Make a Fortune with WordPress Themes
August 23rd, 2008 at 11:38 am
@Lucas: Thanks!
Yeah, many people seem to go with a cap of $1k for PayPal.
Interesting to know that you get the buyer to pay all the esrcow fees.
How often have you done that? Do your buyers usually agree to that without a problem?
August 23rd, 2008 at 2:21 pm
Great tips man! I never even considered the possibility of scammers using paypal like this, well…I have, but didn’t think about it in terms of siteflipping.
Great article dude!
August 23rd, 2008 at 3:01 pm
SuiteJ
Nice tips! I never knew of people scamming people out of their own website. What’s the world coming to?
But, if you’re suspicious of someone or you don’t know the person very well, then Escrow is the way to go. PayPal would be too risky.
Great read and must-know info.
Thanks SuiteJ
August 23rd, 2008 at 5:23 pm
@Joe + @Luis
Yeah, it’s unfortunate that people out there are doing that instead of actually using the time and energy they spend on scamming to do something legit and positive.
It’s also crappy that it’s that easy to get scammed via PayPal, because I love using PayPal. You never know, maybe PayPal will eventually change their policy or add some sort of protection in the future.
Cheers Guys!
Jay
September 5th, 2008 at 3:50 pm
Great tips for protecting yourself from fraudulent buyers.
Now how about a post about protecting yourself from fraudulent sellers?
These days it’s so easy to create fake screen shots for proof of sales and stats.
What methods do you use to check the reliability of someone’s stats that they show?
September 5th, 2008 at 9:24 pm
@Gary: Thanks for stopping by! Check out my latest post on what to look for from shady sellers: http://suitej.com/flippin-fridays/flippin-fridays-7-ways-to-ruin-your-reputation-as-a-website-flipper/
As for screenshots, first the obvious thing is to try your best to buy from reputable sellers.
If you think the sales stats are fake, sometimes you can catch it from matching up the traffic (and other) stats numbers/details with the sales numbers/details. If something seems “off” ask them to explain.
Never be worried about asking questions. Any seller who’s completely honest, and has nothing to hide, shouldn’t have a problem with answering questions.
For instance, a red flag would go up for me if a site generated a bunch of sales to a tattoo site, but the traffic was mostly coming from sites that weren’t related to tattoos at all.
As for traffic, I’ve seen many people make a conditional bid to verify traffic stats. This is usually when there is a high amount of superb traffic and either the seller doesn’t have proper stats tracking, or it’s a very high priced website.
The condition is to point the domain to your own server and let it run for x-amount of days using your own tracking. The seller wouldn’t have to give you the domain, just point it to your hosting.
You can also view seller’s past auctions (you can do that in SitePoint and other marketplaces as well.) Even if they have good feedback, you might be able to spot a pattern of odd traffic/sales screenshots, in which case you might just want to pass on doing business with them unless you can verify somehow.
Hope this helps a little.
Cheers!
Jay
September 7th, 2008 at 1:00 am
Awesome site flipping articles…seems I got through them all.
I have a quick questions about Escrow. What if the seller was a scammer and didn’t deliver what was promised? I assume the buyer could complain and get his money back? How could anyone prove differently? And if that’s the case, the buyer could pretend it wasn’t delivered as promised…or is there actually someone from Escrow verifying domain/site transfer, etc?
September 7th, 2008 at 1:45 am
@Keith: Thanks for dropping by!
That’s an escrow service’s main purpose, to be the middle man and hold the money until everything is verified and agreeable (from both parties).
So, in a nutshell,
- Buyer/Seller agree to basic terms for a new Escrow deal/transaction
- Buyer pays and the money goes into Escrow account (held)
- Seller is notified that buyer has deposited funds (to Escrow)
- Seller transfers files/domain
- Buyer “accepts and verifies everything is good” to Escrow
- Escrow releases funds to seller.
For more details, see the step by step process and other FAQs on Escrow.com here: http://www.escrow.com/solutions/domain_name/process.asp
September 7th, 2008 at 11:29 am
Hey J, no prob, it’s a great blog, I’ll be dropping by more often…
I’m still confused about Escrow lol I get that their role is to see that everyone is happy before money gets transferred…
but I still see room for fraud…at this point: Buyer “accepts and verifies everything is good” to Escrow
What if the buyer doesn’t? One of two reasons… 1) Everything isn’t good or 2) Buyer acts as though everything isn’t good
What I’m saying is that unless Escrow does a WhoIs to make sure that the the buyer is listed as the new owner of the domain, plus somehow makes sure the files have been transferred…also goes and reads the auction to be sure the seller lived up to his or her promise…
I don’t know…I don’t see it as any safer really…If someone wants to be a douchebag they will be…I’m probably just missing something key…..I’ll have another look at the FAQ…thanks J
Keith James Locks last blog post..Luv For My Readers And Other Bloggers #1
September 7th, 2008 at 11:31 am
Duh…Ok never mind…I was making too many assumptions…one being that Escrow was for ANYTHING and not just site and domain sales…
sorry to waste your time man….I get it now…it took 2 seconds of looking at the FAQ lol
Keith James Locks last blog post..Luv For My Readers And Other Bloggers #1
September 8th, 2008 at 8:27 pm
@ Keith: lol. np dude. If you have any questions about selling/transfering, I’ve done it a few times, and I’d be happy to try to help you if I can. Hit me up any time.
Cheers!
Jay