Is this a scam teqnique or legit?

[TessArtDolls]

Had a buyer order something with an incorrect address, and when I asked them to cancel and repurchase with the correct address, they opened a dispute. Now my money is frozen and I can't refund them. 

They later asked if their partner could repurchase the item (I would have to list it again since it's a specific item) instead while we wait for PayPal to release the money back to them. They say they really need the item before Christmas and therefore want to take this route. 

Is it safe to sell the item to their partner, or can they somehow scam me later claiming I sold an item twice to two different people? 

I really need the money but Paypal refuses to let go of the hold.

[PayPal_Bindu]

Hello @TessArtDolls 

Welcome to the PayPal Help Community and thanks for posting here!

I understand your concern about your recent sale which has been disputed by the buyer due to incorrect address. You can offer a partial or full refund in a dispute to resolve it with the buyer. Here's the article with the steps on how to issue a refund in a dispute : How do I issue a refund in a dispute?
 

When you refund a goods or services payment, there are no fees to issue the refund, but the fees to receive the payment aren’t returned. If there's not enough balance in your PayPal account to cover the refund, PayPal may request the money from your bank and this entire process usually takes 3-5 working days for the refund to complete. 

Once the refund gets completed in your account, you can ask the buyer to re-initiate the payment using correct shipping address. if you still not able to issue the refund, you can reach out to the team to look into this further. Contact options to reach the team can be found here : How do I contact PayPal Customer Service?
 

I hope this information helps you,

Bindu