I'd want the refund before shipping the item back. It's almost always the case that if you send the knife back you never get the refund. So you then loose out completely. How is that a strange demand. That on top of the last poster said.
When have you ever gotten your money back from a store before returning the item? In fact paypal protects you as long as you have tracking to prove the item was shipped back, isn't that common knowledge?
On reverse, if I issue a refund and he doesn't ship it back then I'm screwed without recourse isn't that correct?