How To Get Escrow Services For Free When Selling An Online Business
Why you should NOT use escrow.com (or ANY escrow company) when selling a decent sized online business.
I speak from a British context, but most of this will probably apply to you wherever you are.
When selling an online business a common problem is how to execute the transaction ie. do you hand the domain/ hosting account/ everything over before payment is made and sit back hoping that the buyer sends the money?
That’s obviously risky. Similarly, it’s risky for the buyer to wire a large sum of money and sit back hoping the seller will indeed give him control of the domain and website.
So buyers and sellers use an escrow company. The buyer pays the full price into the escrow company and the escrow company holds the money till the buyer confirms he has received “the goods” after which the escrow company releases the money to the seller. Great concept.
And the best known escrow company is escrow.com (actually escrow.com is not the real name of the company, nor are they legally authorised in many jurisdictions, but that’s a different story).
There are three good reasons you should not use escrow.com for any large transaction:
It is ridiculously expensive! No, seriously, stupidly expensive. For a $1m transaction you’ll pay $8,900 in fees. I’ll tell you later how you can get that service for FREE (or, at least, just the cost of the bank transfer – $20 or whatever)
When you are setting up an escrow transaction at escrow.com you need to choose the type of item being sold. You can choose motor vehicle, art, jewellery etc. But there is no choice for “business” or “website”. The closest is “Domain” and you’ll have to choose that if you want to sell an online business.
There is a reason for escrow.com giving you the choice of only domain and not “website”, and it’s a very crafty one, IMO!
If it’s a “domain” rather than an “online business” or “website” it makes things a lot easier for escrow.com to reach a decision if there is ever a conflict between buyer and seller. They’ll simply decide based on whether the domain has changed hands! This restriction of having to choose “domain” when selling a website or online business exists for escrow.com’s convenience and can be highly risky for a buyer.
3. Escrow.com’s terms and conditions are quite onerous. Besides, they are biased towards Californians. If you’re based outside California and the other party in the deal is based in California …you’d better not get into a dispute with them as escrow.com will probably rule in their favour! (This is because Escrow.com is registered in California and operates under the California Financial Code. This is explained a bit on this page, but you really need to dig into the code and escrow.com’s responsibilities under it, to realise how awfully biased it is towards Californians …but that’s a story for a different post.)
There are thousands of successful transactions that happen smoothly through escrow.com every year. I’ve done at least a few hundred thousand dollars of smaller transactions through them myself, maybe a bit more But if it’s a larger transaction, THERE IS A BETTER OPTION. Particularly if you are based in the UK.
The better option that will cost you nothing (in most cases) is asking a lawyer to be the escrow. When getting involved in a large transaction it makes sense to have a lawyer draft the agreement anyway. And this doesn’t come cheap; it can cost anywhere from about £800 ($1000) to, say, £3,000 (circa $4,000) for a lawyer to draft a “Share Purchase Agreement” for a $1m business.
But UK solicitors can act as escrow in the sale of businesses just as they do when involved in, for example, the sale of residential properties. And the best part is that solicitors don’t charge extra for the escrow service they provide!
Let’s look at that again: if you’re using a lawyer to draw up the contract, as you should, you get escrow services for free and save $8,900 in fees on a $1m transaction!