Domain Appraisal Myth

January 8th, 2010

cupo1This topic, as applied to premium domain names, is particularly relevant to new domain investors since they are most subject to being misguided by domain appraisal peddlers/scams. There are many online appraisal services, both automated and human.

Bottom line: The vast majority of appraisal services are worthless, literally. It has been demonstrated repeatedly since the inception of domaining that domain valuation is more art than hard science. Appraisal peddlers attempt to whittle down valuation into several simple, but marketable variables. This allows them to take your money and leave you with a pseudo-product, i.e. an arbitrary price that is supposed to represent your domain’s worth.

The reality is that this purchased appraisal often bears little relation to your domain’s true value. True value, or top price to an end-user buyer, has nothing to do with “market liquidity” (the theorized price at which something can be easily and quickly flipped or sold). You can take a beautiful million dollar property and make it liquid very quickly by reducing its price to $300,000. But why take a $700,000 loss? Only if you’re desperate.

Time, market fluctuations, and availability/need of the targeted buyer, are only a few of the more important variables that contribute to successful sales. Noted domainer, Rick Schwartz, sold iReport.com to CNN for $750,000 in 2008. He could have sold it at “liquid market” prices for 20k. But smartly, he didn’t. Traffic metrics, parking revenue, and other valuation angles have little applicability for high quality domain names. They may have some usability for much lower quality, commodity type domains (non-premiums).

Scammers often attempt to use “market liquidity” arguments to drive a price down into the cheap range (where they intend to buy). Most premium, and even good quality domain names, are not yet well utilized, developed, marketed, and monetized. Their value is yet to be ignited and discovered. To use the Real Estate Analogy, you may have prime property that is only a field, but which is located in a highly desirable location. The true value is in the inherent untapped potential of the premium property, not what you can flip it for in a quick, easy transaction. The mule farmer will give you pennies on the dollar for it … to let the mule graze. A Fortune 500 company with plans for big expansion will have a much more elaborate vision, and budget.  

There are numerous examples of this concept. A quick one is Business.com which was sold and resold a total of 4 times in about a decade. Registered for around $100, sold for $150k, resold for about 7.5 million, then developed into a functional business and sold again for $345,000,000.

bizmanKey Point: Premium domains have extensive potential for launching lucrative, powerhouse businesses. Such potential cannot be assessed by novices, amateurs, or simple automated appraisal mechanisms.

In closing, those new to domaining should understand that there are complex factors which comprise a domain’s true value. The value (market premium) of a high-quality domain name can never be estimated from a mathematical algorithm, traffic metrics, or even past sales of similar domains (comps). Premium domains are not commodities. They exist in an entirely different category subject to different valuation criteria. It takes a highly-qualified appraiser(s) to assign a meaningful value range based on multiple business applications and industry-specific variables.

Premium domains correspond to high value assets like prime real estate, rare art or hard-to-find collectibles. Commodity-level domains are more abundant in the marketplace, and consequently do not have the intrinsic worth of the premium domain. Commodity-level domains are more easily assigned an appraisal value using the common metrics like existing traffic, PPC (pay per click) statistics & revenue, similar domain sales (comps), etc.

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