I believe, although I am not certain, that the bitcoins are put into escrow as soon as I sent the request to the advertisement (so step 1.5). I've not yet seen this process from the seller's perspective.
Unfortunately, I am not certain first-hand how this process works if you are transferring via cash in hand. There are more details on the 'transaction service' that offer which is designed for cash in hand - see the link below.
https://localbitcoins.com/faq#howto_why_transactionThanks for the link, but this seems to confuse me:
Note that both parties can cancel the trade at any time. Each trade done with the transaction service will build your reputation on localbitcoins.com
Doesn't that mean that even if he releases the bitcoins, and receives the transaction-code he can still cancel the deal? Like on paypal?