Escrow Companies and Due Diligence


Choosing an Online Escrow Company

After reading all the threads at DNForum about problems with Toby Clements escrow service and seeing a great article about due diligence, posted on Andee Hill‘s feed on her Facebook page, I decided it was time for some due diligence of my own. I’ve put together some important questions for you to ask before you put your money on the line.

What are Online Escrow Services?
Online escrow services are when a neutral third party reduces the risk of an online transaction by providing equal protection to the buyer and seller.  The party wishing to purchase the domain will give the escrow company the requisite money, and the party selling the domain will transfer the ownership of the domain. Once this has been completed, the escrow company will then give the necessary parties the documents or the money at a previously determined time.  Neutral, by my definition goes outside of the specific transaction to include is the escrow company neutral?  Do they have anything to gain by knowing the specific information of my transaction?

How Do I Know if an Escrow Service is Licensed?

First of all check the obvious, who issued the license and for how long have they had it.  Getting properly licensed is something that can take considerable time and effort.  Every legitimate company should be able to point you to their licensing authority.  If the license was issued in a foreign country and you think you are doing business with someone in the United States that should raise a red flag.  From where the license is issued will most likely dictate the laws that your transaction are subject to.    In addition to licenses these companies should also have insurance policies and bonds in place.  If you are doing a high 6 or 7 figure transaction you might want to check these out. What would happen to your funds or domains should your escrow company go out of business, would this licensing agency get involved to make sure everything turns out right?  It is also prudent to visit for a check.

What are the Risks if an Escrow Service isn’t Licensed?

The main risk that is associated with using an unlicensed online escrow service is that there is a high potential of having one’s money stolen. The purpose of the escrow is to act as an intermediary between a seller and a buyer. If the escrow is not legitimate, then an unsuspecting customer could trust the escrow service with his or her money, only to watch it evaporate as the escrow disappears off the map. Escrow services that are frauds can also result in personal financial information being stolen, such as credit card numbers and social security numbers. Actual, physical merchandise can also be stolen in an escrow service fraud. has reported over 13,000 fraudulent websites.

What are the Risks if they are Off Shore with Off Shore Owners or On Shore with Off Shore Operators or what if their structure just doesn’t make any sense?

The risk that a person takes on when he or she uses off shore escrow services with off shore owners is that it is much more difficult to verify if a service is legitimate. There are not easily accessible Better Business Bureaus for foreign countries. If the escrow service should turn out to be a scam, the merchandise, information, or money will also be more difficult to recover should the escrow service be located off shore. This is because, due to sovereignty, countries cannot easily pursue, investigate, and prosecute criminals located in another country.  Should that company have a license in, say Australia, and you had an issue with the company you would most likely have to seek resolution in the Australian courts.

How Do I Choose an Online Escrow Company?

To choose an online escrow company, the first step is to get a handful of different potential choices. Then, each company needs to be thoroughly checked to ensure that it is legitimate and will not rip off the client. This can be done using any of the suggestions mentioned above. Once the escrow companies that are not legitimate are eliminated from the choices, the next step is to look at an escrow company’s level of security. The best escrow companies make sure that the seller is verified before sending any money to him or her. The merchandise that is being sent to the buyer will be tracked to make sure that nothing happens to the products while traveling. Finally, there will be a brief period of time before the money is given to the seller that will allow the buyer to return the merchandise or domain should it be fraudulent. The last step is to look at reviews for escrow services. This is important because it will allow a potential customer to gain insight regarding the inner workings and customer expectations of the escrow company.  As with any good business decision, look under the covers and use common sense.



One Response to Escrow Companies and Due Diligence

  1. […] did a post last week about choosing an escrow company and due diligence. Since then I’ve had many people ask me questions about what to look for so I put together a […]

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