High Bidding Does Not Mean High Value

I’ve seen it happen over and over and over again. Ten people bid on an expired domain and then two people battle it out bringing the price over-and-above what any end-user would realistically pay for the name. It’s a weird phenomenon but it happens outside of the domain world as well, it’s an auction mentality and it’s why auctions can perform so well for sellers in some cases.

The challenge with domains is that people can often confused the final sales price of an expired domain in auction with the wholesale value of the domain. In some cases this is true but in many cases it just takes two persistent bidders to bring the price way up and out of a range that wholesale buyers should be buying in.

What happens next is what can turn an investor into a collector. So you have a name that you paid $1,500 for and you now want to sell it for $3,000+. You think it’s worth $3,000+ because heck you paid $1,500 for it in auction and that must have represented the wholesale price.

The problem is, the domain really isn’t worth more than $1,000, you overpaid, you paid more than retail, but you didn’t know it. Now fast-forward ten years from now and you still have the name in your portfolio and you’re sure that $3,000 buyer must be out there somewhere. The moral of the story is a simple one but one that we all need to remind ourselves of.

It just takes one person to battle with you over a domain to bring the price up 10x from when you first started bidding. That one person may not have ever made a dime with domains and have no idea how the industry works…but they can turn a $200 domain into a $2,000 domain and take you along for the ride.

Been there before? Feel free to share your experience(s) below.

{ 5 comments… add one }

  • Robbie December 4, 2013, 3:06 pm

    Morgan, I am seeing what you are seeing as well. Dealing with end users everyday, and seeing what is being bid up by ill informed, or newbie bidders it just madness.

    I mean if you are paying 4 figures in the aftermarket for low search multiple keyword .com’s, factor that in with the risk of holding out for even a single offer, against a multiple of domains, your return is going to be very small, based on the risk. Funny thing is I know Adam touched on it, bidders will go crazy for a expired auction, but if that same domain was on sale in the same marketplace, look for it to get 1/5 th of the price.

    These guys are going to be in for some serious fire sales down the road, when the renewals start adding up, and the end users that do come knocking, start walking on high price valuations based on crazy aftermarket purchase prices. Great observation Morgan, you are on the ball. A lot of guys out there, are running bids up, and if they get caught with the domain, they just bail, makes for some serious marketplace security issues.

  • Robbie December 4, 2013, 3:08 pm

    Another test I have used Morgan, is domains I caught in the same marketplace 2-3 years ago, I have let expire thru the auction process, something that I paid $12, or sometimes less for, is now auctioning off in the $300 – $2500 range. These domainers are out of touch with the actual end user, who will throw $500 offers at you all day, for a domain you paid $2000 for.

  • Domenclature.com December 4, 2013, 4:17 pm

    The only complain I have is that Auctioned expiring/expired domain names’ proceeds belongs to the Registrant of the prior 12 months; it is my opinion that the Registrar should deduct the renewal + late fee, and return the balance to the owner. I believe it is a tortious breach for these people to be selling these names and keeping the money, whereas they never purchased or Registered those names. A class action suit that could go after the practice from it’s inception, which is many years now, and possibly billions of dollars in damages is possible. Even ICANN is not immune from this exposure.

  • Alan, namedream.com December 4, 2013, 4:48 pm

    Yes!

    As the price goes up, the risk to the domainer/investor – is going up, up and away, but the bidders are believing that it’s going down, down, down because of the numbers.

  • HowieCrosby December 4, 2013, 10:19 pm

    Good report Morgan, I think I’ve mentioned this before, times when I was in the antique business I seen this done all too often by the trade, however, I think with the domain auctions it could be by bidders coming in late without much research and a hunch, and as you say it only takes two!