Erasing the watch only de-activates Activation Lock if the watch is unpaired and erased via the Watch app on the paired iPhone. Erasing the watch directly on the watch does not achieve the same result.
Apple Watch is also never listed as a device within Find My iPhone, even when Activation Lock is enabled (the features are not the same thing).
To remove Activation Lock from your old Apple Watch:
- In a web browser, go to: https://www.icloud.com/
- Sign in with your Apple ID > go to Settings > go to My Devices > Click on Apple Watch > Remove it by clicking on the "X" and then on Remove.
It may help if your buyer tries these steps:
On his iPhone: close the Watch app along with all other open apps (double-press on the Home button, swipe up on each of the app previews).
Restart both devices, turning both of them off and then restarting his iPhone first:
- To turn the watch off: press and hold the side button until you see the Power Off slider; drag the slider to turn off.
- To turn the watch back on: press and hold the side button until you see the Apple logo.
Then re-try setting it up.