Domain Name Appraisals vs. Domain Name Sales

I have to give credit for a colleague at another firm, who suggested that I use a different title for my last posting. I changed it to: Are the Free Domain Appraisal Tools Worth It? He was absolutely right. My title was not nearly as focused. But that is what this blog is trying to get to. The answer to that question. It also hopes to open up further discussion and debate regarding the whole issue of proper valuation of domain assets.

Why is this so important?

Because for every one, successful domainer out there, there untold numbers of people who plug away at domaining, who don't have the financial resources or advantages of experience, and they're looking for some solid answers (or at least informed discussion). The theory is that if domain name sellers and buyers both knew the "real value" of the domain name, and the buyer had a good business reason to buy and the means to do so, the buyer and seller would happily transact business and each would walk away feeling good about the deal.

In the early stages of our portfolio acquisition, we at Penguin also found a single, free, online domain name appraisal tool and began to use if to benchmark names. We hoped this tool would determine that some of our names were actually worth something!

As time went by, we conducted more research and located other domain name tools. Then, we began to see what is quickly obvious to anyone who has tried this before: The results varied widely from tool to tool in the free space. In instances where we ran analyses on a domains that belonged to someone else (and actually sold) we noticed that there was the same type of disconnect between the domain name sales price and the appraisal price.

For the past few years, we have been trying to determine what, if any, help domainers can get from using a "system" of free online domain valuation tools to help in setting sales prices for domain names. Notice I said "domain valuation tools," not just domain name appraisal tools. And I also said "system." I didn't refer to the use of a single domain appraisal tool.

As the title of this posting suggests, there is often a difference (and sometimes a substantial difference) between what a domain name is appraised for and what it actually sells for.

Click this blog title link and you should go to the recent MONIKER auction results for the opening night's no/low reserve event. That link may take a few moments to open, so be patient.

Approximately half of the domain names in this block sold, but not all of them did. Which begs the question. Why not? Apparently the sellers didn't feel that the bids were adequate to match the value that the seller had determined.

Moniker's statement on this event was that the "market" would determine the value. I guess some domain name sellers just didn't trust the market. Conversely, some sellers may not have understood other market factors that may have influenced the value.

We are assuming that the goal in a good transaction process is accurate to determine accurate value for a given domain name and transact based on a fair appraisal. And I know that many people repeat the mantra: "A domain name is worth what the buyer will pay for it." Boy, now there's a conversation starter for people who might disagree. In the past week, I've read a few postings and web pages that would suggest things are not as straight forward as that. In one posting, an individual stated that he always pays (or tries to pay) the lowest price possible for a domain name and he sets certain limits for what he will pay for a domain as a core part of his acquisition strategy. If the deal doesn't fit his model, he doesn't buy.

Wouldn't this imply that in most cases the domain name (s) in question have a value to him that is perceived to be higher than that of the seller, who may be less aware of the potential value to the buyer?

At the core, Penguin Search Engine Services wants to explore the issue of domain name valuations, and invite you to read, think and comment. Hopefully, the domain community will visit and both experienced domainers as well as us "newbies," will gain a bit more insight into how to accurately value and appraise domain names.

What got me started down this path? I was promoted to a position at a former employer's in the e-business department. I was tasked with learning about both search engine optimization and PPC.

Along the way, as I learned more, I began hearing about the whole industry related to direct navigation and domain acquisition. In discussing the matter with a few people, I quickly learned, as we all do, that the .com gems were long gone.

My friend did, however, encourage me to stay on top of emerging trends and to try to register domain names that might have value in the future. And our small firm has been doing just that for the past few years, with little to guide us in the way of determining value.

I'm not sure how many of you went this same route, but we did actually pay to have a couple of domain names "professionally" appraised. What we discovered was that there was still quite a range of values provided for a given domain name, even when professionally appraised.

One domain name, appraised by three different companies, yielded different results, though the mid-range price at one service and the fixed price at another service did line up pretty well.

Taking into consideration all of the above factors, we decided that the best way to put our system to the test would be to actually analyze names that were going to be sold and compare our results with sales prices. In order to do that, we decided that it would be good to benchmark with a live auction, since this would give us an opportunity to have a list well enough in advance to complete the analysis prior to getting sales results.

The project is now underway. For anyone who happened to find this blog (I doubt there are many), you will know that our small sample from Tuesday's mini-auction in Florida has provided us with some traction. Tomorrow, at 2pm, EST, the fun really begins.

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DISCLOSURE: We are seriously invested in this procedure and hope that we will have something of value to share with those in the industry. We also do, as mentioned above, happen to have our own domain name portfolio. As a secondary benefit, we're hoping that this little experiment can help raise some awareness about the names we own and might be thinking of selling.

In this blog, and in any related websites, surveys, e-newsletters, e-books, etc., we may make reference to names that we own, by way of example, or analogy to help chip away at the domain name valuation issue.
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