Do I have to provide a refund? Local pick up ad showed Location including postcode.

Listing clearly showed item location including Australian postcode. Buyer paid for local pick up. They had the option to pay for postage but did not.  Now asks for refund due to pick up being 'too far' .  Do I have to give refund? 

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Yes.

 

Cancel using whatever option gives incorrect buyer location.

 

eBay will refund all fees and you will be free to relist.