Weighing In On The Old Domain Appraisal Debate

Nothing signals the end of summer and beginning of fall more than a good old domain appraisal debate. Elliot wrote a post this week titled Group Domain Appraisals that is currently sitting at 243 comments. What looked like it would be a short discussion evolved into an epic string of people posting their domains at wacky prices. I thought this did a great job of illustrating just how arbitrary pricing really is, but there’s more to it than that. Theo chimed in as well on the issue pushing the importance of having an expert provide the appraisal.

Shane then wrote an awesome post today citing that Michael Berkens, arguably one of the most successful Domainers on the planet doesn’t price his domains. Shane said that at the end of the day we’re all just guessing so you shouldn’t worry too much about appraisals. I have to agree, an appraisal is nothing more than a guess, but there are levels of how educated that guess is.

This came up a lot when we were building appraiso, the first thing we looked at is how current estimation services were generating their estimates. Every popular website estimation service we could find relied heavily on the Alexa information. So while it produced a guess, it really was a fairly random guess but at least based on some somewhat meaningful information. We leveraged access to a large database of previous website sales to add comparable sales (i.e. sites with similar stats) to the mix. This was one of a number of additions we made to make what still is absolutely nothing more than a guess, as educated of a guess as possible.

Now this ties back to Theo’s point which I also think was on the money. If you want to get the most educated guess possible, humans beat machines. I’d want Michael Berkens, Rick Schwartz, Mike Mann, Frank Schilling, and many other experts to give me there opinion long before an automated system. I would also think it would be hard to get a better guess than from people with 10+ years experience selling domains. But let’s still admit that whatever appraisal is given is still a guess, the best we can do is get the most educated guess possible.

Of course the reality is that too many variables are at play, the most important having nothing to do with historical sales, search volume, or CPC. The most important element that needs to be taken into account is how much the buyer is willing to pay and how badly do they want the domain. It is this incredibly random element that has allowed some of the biggest Domainers to make their fortunes. Sure, plenty of people would pay $300K, $400K or even $500K for a domain like Candy.com, but crossing paths with that buyer that would pay $3 million is the key. I won’t put words in Rick’s mouth but I’ve always admired the way he handles his deals and I think he would tell you that every deal is completely different because every buyer is different.

I see serious Domainers in the same light that I see many VC’s and Angels, they are looking for smart people with big ideas, and when they find the right people, they make a fortune. So appraisals, yes they’re just guesses, guesses missing one of the most critical pieces of information. Still, if I’m going to have anyone making that guess I’d sure love an expert to be the one doing it.

Last, but certainly not least you might be wondering, “but Morgan, you make an automated appraisal system, how can you promote human appraisals??” I think there is a clear place in the market for automated appraisal systems. I use Estibot religiously, if I’m trying to evaluate a list of 500+ domains there’s no easier way to sort and find the best ones. I also learn about similar sales and then do my own research on the buyers in the space. There’s a lot of legwork that an automated appraisal system can do on a large dataset. Try sending an expert Domainer 500 domains and asking for them to do a high-quality detailed appraisal on all of them. Doing things in bulk requires an automated system.

If you have one or two stellar names that you think are worth big bucks, run them by an expert if you know one, it can’t hurt. Still understand that the price really is how much your buyer is willing to pay and that varies from buyer to buyer. No automated system can ever tell you that. So what are appraisals good for? They are good for getting a ballpark, if you think you have a domain worth $500,000 an an expert says it’s only worth $500 you might be living in dreamland and that $5,000 offer you received last week might we worth taking. Of course this all depends on your own investment strategy, there are a lot of variables at play.

In general forget appraisals and do what the pros do (if you have good names) and only sell names based on inbound inquiries. Otherwise just remember to take appraisals with a grain of salt because it’s all about the buyer not the domain name. 

Please weigh in yourself here, do you agree, disagree, think I’m crazy? think I’m a mad genius? Think you’re a mad genius and want to let us know how it really is? Comment and let your voice be heard!

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{ 5 comments… add one }

  • Nadia August 29, 2012, 9:38 pm

    I agree that appraisals can be all over the place, and personally, I’m not a fan of Estibot. I’m still working on becoming more accurate with valuations (I’d say Toby Clements, Elliot, and some of the other domainers who’ve been around for years are the best at this), but I rely on a combination of past sales data and gut instinct. What you said about how badly the other party wants the name is key – urgency and scarcity instantly give you more leverage in commanding a higher price.

    For what it’s worth, I’ve gotten a couple of professional appraisals on individual names from Stephen Douglas at SuccessClick. He basically provides a minimum ballpark estimate, because with domains, there’s really no limit to how high they can go – it all depends on the domain, context, and who’s buying and selling.

  • RaTHeaD August 29, 2012, 10:00 pm

    a minimum ballpark estimate… hmmmmmm… just be careful when your foot hits the warning track.

  • Morgan August 29, 2012, 10:28 pm

    Excellent points @Nadia – I especially agree with you that the key is how badly the buyer wants the name, at the end of the day that’s definitely what matters most.

  • MarsDavis August 30, 2012, 10:24 am

    Hey Morgan,

    Just curious…For tax purposes, how do these companies with thousands of domains “value” their domain names. Are domain names assets with value or something else on the balance sheet?

    How do experienced domainers value their domain names???

    Thanks for your input… Mars

  • Morgan August 31, 2012, 12:17 pm

    Great question @Mars and one that has a different answer depending on who you talk to. There are a number of different ways to run your business based on your own situation. I definitely recommend talking to your accountant about what might be best for you.