I need your help with a conundrum. The answer, I would imagine, is to be found somewhere in economics, psychology or a mixture of the two. It concerns a situation and mode of behaviour , which to my mind, is illogical and irrational and yet almost without exception, everyone adheres to it and accepts it as normal.
Here’s the conundrum:
In a private transaction between two individuals, why is it always expected that the buyer of a product must relinquish control of his money before receiving the goods, rather than the other way around?
This was brought home to me again recently when I bought a used car privately. The car was privately owned but situated at a garage where it was having some work done. The buyer was very clear that he must have the money in his bank account before he would authorise release of the car. I would have to trust him with my money, but he wasn’t prepared to trust me with his car.
I was feeling a little mischievous, so I sent him the following email, which sums up my point pretty well..
“Do you think a seller is more trustworthy than a buyer? Neither do I. So why is it perfectly acceptable (expected even) that a buyer take a risk by giving money to a seller in advance of receiving anything, but it’s totally unacceptable for a buyer to release his goods until he has money? It makes no sense, in fact it’s contrary to logic. Take our deal. If I pay you in advance, I run the risk that you take my money and run. That money can disappear very easily and quickly. You can spend it anywhere. You give me your car before funds are cleared and I don’t pay? Well we’re in a pretty similar boat except I can’t do much with a car I don’t have legal ownership of. You wouldn’t want it to happen, but I can’t spend your car in the way you can spend my money. The point I’m making is that buyers are expected to take a greater risk which sellers are prepared to even consider. Given that they both have equal financial interest in the deal (otherwise there would be no deal) it makes no sense.”
He didn’t have an answer, and neither do I. But there’s little doubt that this is what’s universally expected. I’ve bought and sold a lot of wristwatches online – deals done with private individuals at a distance – and the expectation is always the same. The seller insists on seeing money in his bank account before he will send the watch through the post. So the buyer is expected to trust the seller, but the seller won’t trust the buyer.
This would only make some logical sense if the seller had more to lose than the buyer, but that can never be the case. To stick with wristwatches for a moment, if I’ve offered to buy your watch for £2,000 and you’ve accepted my offer, then we’re both agreed on the value of what we each stand to lose in the deal. It’s £2,000. The risk of you sending me the watch in advance of payment is exactly the same as the risk of me sending you the cash in advance of receiving the watch. And yet one is viewed as expected and the other as far too risky to contemplate.
So what the heck is going on here? I have my own theory, which doesn’t really answer it satisfactorily in my view, so I’ll keep it to myself for now. I don’t want to influence any ideas you might have.
Over to you!
Escrow. That’s what you need for high value transactions.
wikipedia: “an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually agreed conditions by the transacting parties”
Ok, so it costs, but it’s safe.
True, but I want to know why we’re ususally expected to trust the seller but not the buyer.
The person selling is often/usually making a profit from the sale, whereas the buyer is simply buying something – he assumes it is worth what he is paying (presumably) so is not losing anything by the transaction – so the seller has more to lose – the product/object and the profit.
Not really. When I buy a car or watch in a private transaction, I don’t expect the seller to be making a profit – and I’m certainly not making a profit when the roles are reversed. The seller is uusally trying to minimise the loss.
Also… there is usually more emotional attachment to an object than just money – with an object, if its gone, its gone, possibly never to be replaced, whereas with money, if that goes, there’s always plenty more where it came from.
Interesting idea. I’m not sure though. When I’m selling something, it’s usually because I want rid of it and don’t therefore have an emotional attachment. And I can get pretty attached to money!
or…
The seller of an object (if it is reasonable value) will have more than one potential purchaser, whereas the buyer may only have this one chance – so the seller is in a stronger position than the buyer, so can call the tune more easily.
(I’m not really that desperate for another of your books, just got me thinking!)
Well I’d say the reverse is true, more often than not. As a potential buyer I probably have more options to buy something similar, than the seller has options of people to sell to.
Its to do with the balance of trust and risk….
because somebody will have to trust.
One good example to explain this would be Gold.
So, if I sold you a Gold Bar, you would have to transfer the cash first.
Also the buyer usually has more protection. (unless its a car)
But, to take your example, why would I have to give you my cash before you part with your gold bar? Why is it me that takes the risk? We’re both agreed that what we’re exchanging have identical value (otherwise there’s no deal) so why am I, as buyer, expected to take the risk? I don’t seem to have any additional protection over you at all.
In my opinion, neither cash nor object to be sold have value. Why? Because it is only us people that put a value on things. We have to do this in order to survive in a capitalist society. Capitalism is an illusion brought to reality through belief.
Drivel!
John]
I believe the example of the car being at the premises of a third party would be unusual. If I was buying a car in a private deal I would expect to hand over the cash directly to the vendor and drive off in the car following the usual inspection for road worthiness, up to date documents etc.
If the car was having some work done on it, surely the vendor would not expect payment until this work was complete and signed off. Otherwise which party has the benefit of the warranty or whatever guarantee the repairer is offering?
In a normal sale without any third party involvement, the only balanced way of doing the deal is face to face, whereby cash and purchase are exchanged simultaneously. This of course is not practical in postal or internet trading, so the trust would normally have to be carried by the purchaser, as the vendor would have no benefit from renaging on any deal – he obviously would wish to retain his reputation and ensure repeat business, rather than have his name sullied across the ether.
Best regards
Terry
Imagine it’s a wristatch then. Buyer lives in London, seller in Edinburgh. The buyer is expected to send money before despatch of the watch. Why?
There are several reasons, some of them below:
One is that the ‘thing to be bought’ (the thing) is as Bod said more emotionally important that the rather common commodity, money. You take your money to buy the thing which has a use or possession value to you greater than the money has.
A second is that because of the greater ‘uniqueness’ of the thing as against the common commodity, money. the seller has a little more power in the relationship.
A third is that it is easier to destroy the value of the thing, there is more ‘risk’. The buyer can immediately negate its value by, for instance, using / damaging / eating / unwrapping / marking the thing.
A fourth is that there are a lot of formal ways of getting your money back if things are not right . . . recall your cheque (you can do that long after clearing), sue etc.
So, it’s the situation in total rather than just ‘trusting the seller’ that creates and maintains the tradition.
I don’t remember which but one of the 18th / 19th century philosophers, Smith or Mill or someone of that period mused on the nature of money as a commodity used as a medium of exchange . . .
Going to have to disagree with most of that:
1. What’s being exchanged is of equal value to the participants, otherwise there’s no deal.
2. Buyer has nore power than the seller in most instances, The seller has to sell that item. The buyer can buy from anywhere.
3. Very easy to negate the value of a buyers money by spending it and buggering off!
4. I’d say there are at least equal means of recovery for either party. Certainly doesn’t favour the buyer.
Hi John
First I
Hello John,
I think it more to do with the seller psychology in that they believe they have something of unique value that they are willing to sell to you at an agreed price and given that they are doing so they expect you to trust them with your money as your money is in their mind at the time of the initial transaction not of intrinsic value as it is just an offer but their physical item is of the stated value to them. It is only when they have the cash in hand that it becomes of physical value to them and the sold item is now lesser value in their mind as it is no longer theirs and so now they will feel safe to exchange as the cash has now replaced the physical items value and it is now of no value to them as it now belongs to you albeit they have still to release it to you. Well at least that is how my mind works … I think!
Okay, but couldn’t you make the same points about the buyers position?
I think what we have here is a good business opportunity! To settle everybody’s nerves in a transaction of this sort we need an “honest broker” – a trustworthy person/organisation who can receive both the goods and cash before passing them on. I think solicitors might offer this, but they would be too expensive. I offer myself to do this and would only charge 0.5% of the cash being exchanged to both parties (plus, of course, postage/delivery costs>
Something I call the Sheep Factor. (A crowd blindly following what they consider to be the ‘norm’).
If when E-bay, Amazon and the like had started out, they insisted on the goods being delivered before payment was released, then this would be the norm and your question might be reversed.
I imagine the answers you get will vary depending on age. I remember a time when a transaction took place face to face and monies and goods were exchanged at the same time. (Yes I realise that’s not always possible for very long distance transactions).
One of the main questions I ask myself is. with the advent of e-commerce what happened to common decency. Sorry I got a bit sidetracked there. That’s a whole other story!
When you send your goods out, why do you charge in advance? The next time I buy one of your (excellent) books will you send it to me and let me pay when I’ve received it?
If the answer is no, let me know the reason why and this is probably the same reason the big players had when they set up their trading operations, that over time have become the ‘norm’.
Baa
But you’re talking about a business to consumer transaction which is different for reasons that I’ll go into when others have had a go. I don’t want to steer anyone down the path I’m thinking.
I understand your point but the practice you refer to is not universal – I qualified as an accountant and was in practice for many years, unfortunately in those days it was expected that I had to deliver my service long before I got paid, also most business clients accounts had debtors (ie money not yet paid for things sold), also most employees sell a months labour before being paid.
In shops the acquisition of goods normally occurs simultaneously with parting with money.
I think the pay now get later practice has become commonplace since the growth of internet sales and is very practical. It is a lot easier and cheaper for you to charge my card before sending me your book than having to contact me after the effort and cost of despatch.
However if in future you will trust me (as a long term valued repeat customer) to pay you after I have received your book or other unavoidable, too good to miss product or service, I will be happy to accept that as a basis for doing future business with you. I hope the prices will not have to rise too much to cope with the extra billing and debtor chasing.
Another reply that’s getting close to what I think the reason may be. Clue…you’re talking about commercial transactions, I’m talking about private ones.
Possession is nine points of the law as they say. If you get a car without handing over the money you could claim the car was a gift – whose to prove otherwise. Once the property is in your possession there’s a heck of a job for the rightful owner to get it back again. If, on the other hand, you hand your money over , you get a receipt – evidence of a contract.
What’s more have you ever got something for your mate, like concert tickets, and you say pay me later and you never get the money – I think this would be replicated in the market place if people handed over their goods first. No, handing over money first is the way people do business. It may seem, somehow to lack logic but people feel saver with it and generally it works.
You said “Once the property is in your possession there’s a heck of a job for the rightful owner to get it back again”. Could you not say exactly the same thing about money?
Hi John
First I have to say that your conundrum makes a lot of assumptions; that all transactions are carried out in a similar way but this is not the case. Many service industries know from bitter experience that if they do not get paid upfront then they are very unlikely to get paid. If they do get paid it is either in part, over a protracted period or very reluctantly.
With regard to products it’s usually all about perception. If you buy take away or sit in to eat food, for instance, then you not only receive the product before you pay but you actually get to consume the product if you eat in. Yet if you have a pizza delivery you pay cash upon receipt, no credit, for obvious reasons. The only exception to this rule is if you are an established customer and have built a history of mutual trust.
It’s all about perception and trust, some products and services have over the decades been seen as “fair game” by unscrupulous buyers and vendors and so society adopts certain practises as the norm so to speak.
With regard to your car sale, I too have carried out numerous purchases and sales over the years and I have never just given money, be it cash, cheque or whatever without some form of solid guarantee e.g. the log book etc. Similarly with high ticket items such as the watch analogy I would require a solid guarantee of some kind before parting with any payment irrespective of the sellers terms. Ebay and Amazon are prime examples of this situation being carried out in practice.
I know this may not specifically answer your conumdrum but some queries do not have simple black and white answers but rather dwell in that gray area where the answer is more based upon the Heisenberg Uncertainty Principle.
Appreciate that, but commercial transactions of different kinds have different ‘rules’. My conumdrum relates to a private sale between parties of equal standing and power though. Why, as a buyer, should I be expected to trust you with me with my money when you won’t trust me with your goods?
In my opinion that’s why Amazon is such a good idea. The buyer and seller exchange simultaneously
Caveat emptor is the adage.
Or buyer beware!
Think about that.
Its human nature – as you said previously, if I am selling something privately (as opposed to in a business), I want rid of it, but I want to make sure I get your money – if you are buying, you want the ‘thing’ but know you can get it elsewhere (or so you tell me) so, the only way I know you will pay me is to get the money off you first, then I have achieved my objective and have my reward for getting rid of the ‘thing’ so have no reason not to send it to you (I can see the hole in that one already!)
I know… I’ve cracked it!
It’s a cunning plan devised by the ancients to allow them to sell the same thing over and over again to lots of trusting people…
Oh, no. That’s Streetwise publications isn’t it?
And I thought you were hoping to win!
The only thing I can think of, that might help is, a 50/50 approach – You pay the seller 50% of what he wants – he sends you the item, and on receipt of that item, you send him the other 50%
That way, the buyer and seller accepts equal risk
But you might have to do some sneaky negotiations first, in order to arrive at that point.
You might even do the same with the goods themselves, although that plan tends to fall apart with pets!
Many of the comments above have a ring of truth and make sense.
I think that it is borne out of a historic point of view that in the past we have all had our fingers burnt by lending items to friends for the item to be returned damaged or generally in a condition worse than when we lent it to them.
This may also be the case where we have trusted someone to pay us after they have had the goods only for them to not to pay us.
So when ever I have something for sale that is of a private nature ( “Fnarr! Fnarr!” 🙂 ) I expect the cash up front before I part with the goods. If the person doesn’t want to trust me because they have been caught before the so be it, they buy the goods from somewhere else.
It is all about Trust and once you have had trust broken it takes a very long time to for Trust to be rebuilt, if ever.
The old addage Once Bitten Twice Shy could also be applied here.
One final point slightly off topic ( but to get me the longest reply )
Why do we generally shake hands with our right hand ?
Long ago when I was in the Boy Scouts it was explained that Warriors always used to hold their shield in their Left hand and their Sword in their right hand, so if someone was offering you their hand in friendship they probably didn’t have their sword drawn if they were carrying their shield. Trust….. All well and good unless your lefthanded like me 🙂
Got to worth a book
I agree completely in principle, but it’s a question of practicalities more than of principle, isn’t it? In practice, both parties are concerned about what might happen if either party breaches trust, and the leverage they may or, more importantly, may not have to remedy the situation if that happens. This usually determines what becomes the accepted practice in each type of transaction. In other words, it’s the ‘what ifs’.
Your car example is a particularly thorny one of course. We all know what a minefield area this is. This is because the assets in question are not only high value, but they are mobile, easily hidden, and prone to having faults. I have bought and sold many cars over the years, (mostly unprofitably) but I would never consider either paying a private seller, except perhaps for a token deposit to seal the deal, without driving away with the car there and then. Neither would I allow a buyer to take the car on the promise that he will pay me for it. It’s the ‘what ifs’.
If I’m buying, what if he sells the car a second time to someone else and keeps my money? Well, at least I would (probably) know where he lives, but he could be moving out today. If I’m selling, it’s even worse. What if he crashes it on the way home? What if it breaks down before he pays me, or what if he just fancies trying to get some money off. What if I never see him again? He would have my car, and he could refuse to pay or to offer to pay less than agreed. If any of these things happened, I could be left with no car and no money, and no practical leverage to do anything about it. OK, so I could go to court in theory, but that would take ages, could be costly, and I might not win. Even if I win, what if he has no money?
In the case of your latest car, it might not be you the vendor distrusts, it might be the garage (although it’s probably both you and the garage). Once the vendor parts with the car, he loses his leverage to remedy things if it all goes wrong. You would feel the same surely? The way round it of course would be to meet him on the forecourt and swap the readies or the bank draft for the keys, but that’s not always practical. Any other way, and somebody is taking a risk. The difference being that you can probably afford to risk it and he possibly can’t.
This conundrum exists in all sales of course, but varies enormously in intensity of discomfort, depending mostly on the nature of the asset and, to a lesser extent, on its value. Cars are a big problem because of the nature of cars and their high value. Houses of course, although much more valuable, are much less risky. You can’t run off with a house, or a piece of land. Much more leverage preserved on both sides.
All of your ‘what if’s’ could equally apply to the money. What if the guy takes the money and doesn’t supply my car/watch/combine harvester…whatever?
I did say precisely that.
So perhaps we’re not any closer to knowing why the way most people behave suggests that it’s buyers that should take the risk?
It’s probably got something to do with banking practices, and admiralty law, which governs much of the way things are done. It’s probably based on exchange of goods when bringing them into port. I would have said loans, the lending of money, but that’s the other way around.
Hi John
After some thought, I don’t have the answer, I think it’s just the way it is and I don’t sweat it.
I concentrate on the things I can change and that’s my bottom line. When you start to make money without a job, it’s a great feeling and anybody can do it.
Great post, fantastic blog!
Many thanks. Glad you like it.
I often find that the answer to conundrums like this reveal something you can use. So it’s not so much wanting to change it, as trying to understand a bit more about what drives and motivates people.
My guess is that it goes back to contract law.In order
for a contract to be valid there are 5 key points from memory.One is there has to be an offer another one is there has to be acceptance of the offer.In your case of the watches the offer is not you putting it up for sale but him offering you the £2k you then accept it and then its his turn to move historically i.e. pay you the cash.If you’re bothered I think the case is boots pharmaceutical v someone?.To give an example if you go to Tesco and see champagne at £2.99 a bottle when you know it should be £29.99 and your only ethical dilemma is how many you can get in the trolley when you get to the till you are only offering to buy them-if the girl on the till sticks them through -happy days-she has accepted contract on behalf of company.The initial “offer” i.e. ebay or priceon champagne Tesco is called an “invitation to treat”
Interesting – a legal explanation. Maybe it goes some way to explain the origin of what people now accept as normal.
As it’s not always the case is it? In your scenario, the seller could of given you a receipt for the money which also needs to be specific, you had to pay up front. Assuming that you did a bank transfer you’re covered as that is proof of a transaction. And remember, you don’t have to part with your money unless you’re happy to do so.
If I put my car up for sale there is a good chance that crooks will be attracted if they think that I will let them have the car before I get the money. On the other hand if someone goes round the supermarket car park looking at cars and offers me money to buy my car and drive it away this evening promising to pay tomorrow I am going to assume he is a crook.
I think if you expect to exchange cash for goods, ownership passes immediately. A cheque is just a piece of paper unless it is guaranteed, with a bank card or a bankers draft. So I think only a fool would give up possession of goods without first receiving its value. Trusted individuals may be an exception though.
WOW ! What a lot of stuff.
John, I think your conundrum comes down to people subconsciously believing that money is easier to replace or make than the ‘thing’, so they are more at ease (for want of a better expression) to hand it over first.
My previous reply overlooked that you were only referring to private sales. In which case I am not sure that you are always expected to pay prior to delivery. I never have paid a private vendor prior to delivery (except ebay using paypal) and if I were asked to and it was the only way the deal could proceed I would find a fail safe way of paying like a post dated cheque or credit card or find some means of re-assuring myself of the probity of the vendor.
The point is if the value involved is significant I do not believe that it is accepted practice that the risk of non payment v non delivery should be other than equal.
Ah, but you’re an accontant! My experience is very much that cash is expected in advance of the hand over, or despatch, of goods when a deal is done at a distance. Even in a face to face transaction between private individuals, that’s the case. If you buy a used car, the seller will insist on the money being in his account (or in his hand) before handing over the keys. It’s never the other way around.
The fact that, if asked, most sellers would not send the item before receiving payment, yet most buyers do send the money before getting said item, must show that things are not equal – the buyer must want the item more than the seller wants to sell it, so the buyer has to take the risk, or go without – otherwise it would be stalemate. They may agree on the price, but who wants the deal most?
Many thanks for all the replies. I’ve posted up my view on it on the blog headed ‘Why the hell do we do it like that?’
I personally go through a lot of blogging sites, although your
website is a pleasure to read through.
my weblog second hand car buyer
Most online transactions favour the buyer with the advent of eBay and paypal, the buyer has far less risk. He /she pays, I don’t send the item, they complain and get refunded by eBay. I send the item they say they haven’t recieved it , when they have, even with tracked parcels they get a refund and I lose my goods. Some times the feedback element of online distance selling, scares the seller into refunding the buyer, which the buyer can take advantage of. The distance seller is at the mercy of the middlemen.
Its down to trust I suppose, I won’t send an item to someone because they could dupe me and say it never arrived, but ultimately it makes no difference because the money I get isn’t ever mine until they admit to having the goods and still wanting them. When I personally buy something I pay my sum of money based on trust, and in order to trust I read reviews and check feedback to gauge my risk, ultimately knowing ill get my money back if it all goes wrong 99% of the time especially when using PayPal or a credit card.
I think, generally, when two people are doing a deal like this, the prospective buyer usually actually sees the thing he wants to buy (certainly in the case of second hand car, but even with online sales, it is accepted that the item exists). However, the seller does not have the same confidence in the money existing.
For example, it is accepted that Streetwise is a reputable company and when it advertises something for sale (a book, a DVD, etc) it is accepted that the item is available (in a lot of cases, there is actually a picture of it. However, the seller, Streetwise, has not seen a picture of the buyer holding a wad of cash or a cheque.