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How do I refund a buyer?

I sold an item yesterday on ebay. As I was about to wrap it up and get it ready to send in the morning I noticed it had been damages. I have contacted the buyer and understandingly he doesn't want it no more and I have offered him a refund.
Do I just do a normal refund through paypal or do I have to start some form of process on ebay? Just to make sure I cover my self I would like to do it the right way.

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