someone wants to return an item

Hi i have sold a new beach top to someone that only lives a few blocks away from me.  She wanted to get it posted which to me is a waste of $7.  It has been over 2 weeks and today i get a message that she is unhappy as the beach top even though its a size 10 is really more of a size 7.  I have explained that beach rash tops are very fitted so its not on the big side.  Now she is saying that its not new and has fraying.  Im really confused as this was definately brand new and never been worn so im abit suss especially why wait 2 1/2 weeks??

 

Anyway as she has paid with paypal if she brings the top back i shouldnt give her the refund in cash should I if she drops it off?  If i see there is no fault i shouldnt have to pay the full amount.  I have offered some money back but havent heard back yet.  Or does she have to send by post with tracking to show paypal?  So over selling atm.  I have sold alot of these new quiksilver tops and no problem so im really confused.

 

This is not my selling id by the way