Domain Auctions – Get Educated
Domain name auctions occur throughout the year in various online formats, and less frequently in LIVE versions in which domain conference attendees bid against each other with paddles in response to a live auctioneer.
Domain name auctions are both an opportunity and a risk. You must weigh the pros and cons before submitting a domain for auction consideration. Be sure to understand the contract which you will be required to accept as part of the auction submission agreement. Some terms in an auction contract border on unacceptable, and can significantly diminish your rights (and revenue) as a domain owner.
Here are some potential drawbacks to be aware of in submitting your domains for an auction:
1. LIVE + Silent (or extended) auctions often will not provide you the option of specifying whether your domain will be placed in the LIVE part of the auction or the extended (non-live auction). You may only want your domain name to be considered for the LIVE auction. It is OK to ask for this guarantee up front. The auction house may or may not agree to this. The risk is in having your high-quality domain stuck in the “silent auction” where there is much less visibility and publicity.
Furthermore, the auction house will ask for reserves that are very low in order to effect a sale (to insure their commission) thus placing entrants at risk of losing a valuable domain in a relatively low traffic auction where your good domain can be sniped cheaply in the final minute of a so-called “silent auction”. Once the domain is sniped cheaply (because you set the reserve too low), then you are contractually obligated to sell it. This is not a good result or feeling!
2. Auction contracts used to require 180 day (or 120 day) exclusivity in which any sale of the domain (even through your own outside efforts) resulted in you paying the auction house their commission. This contract length was far too long, abusive, and terribly lopsided in favor of the auction house and against the domain owner. It actually rewarded the auction house for YOUR WORK instead of their own.
Today’s contracts have been pruned down to 60 days which is more reasonable. I know of many premium domain owners (myself included) who simply refused to submit their domains under a 180 day contract. Historically, this resulted in LIVE auctions receiving lots of lower tier domain names which ultimately received no bids in the auction. This hurt the live auction format for several years because premium domain owners would not submit their domains under such terribly abusive contract terms.
Additionally in regard to auction contracts, look for 60 days maximum length, but also for a 6o day contract that expires automatically. In this instance, you are automatically released from the contract at the end of the 60 day term. If the auction house hasn’t facilitated a sale by then, they’re not going to and should be entitled to nothing. And you should be able to pursue all of your other options without any obligation to pay the auction house a commission.
To illustrate just how exploitive some auction houses could be, they would require the 180 day exclusive contract. But if your domain did not sell at their auction, they still wanted you to pay them a commission even if you sold your domain 4 months later to a buyer you found on your own. Terrible! Not only that, but the 180 day contract would auto-renew locking you in for another 180 days ( in a perpetual cycle of obligation to them). The auction house would be doing nothing to effect a sale during this time period. But they wanted to be paid anyway should the domain sell through your other efforts. Unbelievable.
Rick Latona’s contract, which I recently reviewed, is much better offering a 60-day term that expires automatically. And Latona is known for taking more active marketing efforts than about any other auction house. So Rick is setting a new standard for fairness and demonstrating a more balanced approach to brokerage than any other auction house or brokerage that I am aware of.
3. Auction reserves are a hugely important consideration. Auction staff are famous for saying “Lower your reserve because it will generate more bidder excitement”. This is smoke & mirrors, and a somewhat disingenuous statement that when properly interpreted reads “Lower your reserve because we want to insure that we make money off of your domain no matter what, even if it sells cheap”. Be very careful here.
It’s up to you to arrive at a realistic valuation of your domain name. Be sure to carefully choose the reserve price because there is a very high likelihood that the domain will be sold at that minimum price. The auction house only want to churn sales as quickly as possible, and will not necessarily be a reliable estimator of a domain name’s worth. They are strictly advocating for their own commission. Flip the domain, get the commission, move on to the next. That is their primary interest.
In many cases, a dedicated domain broker with a tiered commission arrangement is a much better option for selling a premium domain name. This will result in a much more targeted marketing approach that is superior to the mass auction house format.
On the good side, having your domain in a LIVE auction can lead to a good sale. Be aware that most all domain conference auctions are predominantly domainer-to-domainer sales. So volume pricing and volume commission are the default fall back strategy for most domain conference auctions. I expect this to improve gradually as the concentric circle of domaining continues to widen.
