Working With Domain Brokers - Part 1

Working With Domain Brokers - Part 1

When you really think about it, professional domain brokers have one of the most difficult jobs in the world. They have to manage both a domain owner’s and a potential buyer’s expectations and walk a tightrope whether they get paid or not. I’ve been doing a lot of thinking about the brokering industry and thought that it was about time I wrote an article or two on the topic.

Domainers, engage the services of a domain broker because they want a domain(s) sold. The reason they do this is that to date they have not been able to sell their domain at their anticipated price point. They then pass their domains to a broker in the hope that by engaging the services of a professional they will succeed in attaining a great big windfall.

Escrow.com

So what’s the first thing that a domainer does? They tell the professional what their domain is worth. How stupid is that???? The reason why they’ve just engaged a broker is to get their professional advice on the value of the domain. A good broker is a person that should have the pulse of the market….not the domain investor that has, to date, fundamentally failed to sell their asset.

Here’s the difficulty for the broker. In most cases, the domain is worth precisely what someone is prepared to pay for it. Sure, they can guesstimate, but a more professional broker will more often than not say they need to do some research on the sale price. What they are really saying is I need to make some calls, rustle a few bushes and see what falls out. This makes perfect sense to me.

More often than not, the domain owner has completely unrealistic expectations on the price. If you ask 99% of domain owners for a valuation of one of their domains they will ultimately guess. There’s no science or numbers behind what they want….they just want it. That’s all very well but what they want for the domain and what the market is prepared to pay are two entirely different things.

For example, you may want to sell one of your domains for millions of dollars but if the market is telling you it’s worth $10K then you really need to revaluate at your expectations.

The problem arises when the broker looks at what the market is telling them and then the often crazy number that the domainer wants for their domain. If the numbers are way apart then the broker knows they will never sell the domain and make their commission….so why bother starting.

If the numbers are closer together then the sale is more likely to happen and the broker can either do a quick sale or try to push things upwards. They are now wrestling with maximising value rather than whether they will put food on the table.

For example, let’s imagine that a domainer values their domain at $100K (ie. the reserve price) and the broker values it at $20K. Put yourself in the broker’s shoes for a second…..deep down they know that it will be highly unlikely if they are able to meet the seller’s price…..so why would the broker waste their time? On the other hand, if the reserve was $20K then the broker is now working towards a $30K+ sale value to move the domain on and maximise their commission.

What I don’t understand is the number of brokers that are still doing deals where they only receive a commission on the sale of a domain…..this is what I would do if I was a broker.

I would say to the seller something like, for every $1,000 that we are apart on the domain valuation you need to pay me a retainer of $10/month in advance. If we look at the above example this means the seller can either reappraise their $100K reserve or reduce it to the broker’s valuation. If the seller refuses to budge then they need to pay $800/month for the broker’s time.

What this model does is:

1.      Pay the broker for their time attempting to sell at unrealistic prices.

2.      Incentivise the seller to reduce their expectations in line with the market.

3.      Ultimately start to increase the liquidity of domains as more are sold.

We can argue about the price points and whether it should be $10/month/$1000 or some other figure but the model seems to stack up pretty well.

In the next article in this series I’m going to share some of my own experiences with engaging the services of a broker and also some of the stupid practices of sellers.

---------------------------------------------------

Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

Working With Domain Brokers - Part 2
ICANN Dublin

Related Posts

 

Comments

No comments made yet. Be the first to submit a comment
Already Registered? Login Here
Guest
Thursday, 14 December 2017