Why Using Domain Sales to Evaluate Domains Can Be FlawedPosted: January 24, 2012
In real estate, properties are evaluated mainly by looking at sales of similar properties. You can then look at the differences between them and the property being appraised and make adjustments. It’s effective enough for real estate appraisals that in many highly populated areas, automated appraisals can evaluate properties with a fairly small degree of error.
The same cannot be said for domains however. Besides the fact that many domain sales are not publicly shared, automated appraisals of domains have not proven to be consistently accurate for many other reasons.
Why is using domain sales to evaluate domains often a flawed practice?
End-user and wholesale sales mixed together
Consider the simple fact that there are many cases of available domains that were registered for about $8 and sold for thousands of dollars. Registrations wouldn’t show up in completed sales however, but for a recent case of a bought and resold domain, look at Meet.me. It was bought for $5,890 by domain investors and sold to the end-user MeetMe.com for $450,000.
Those are certainly cases that aren’t typical, but even typical cases of this divide in values often have the end-user value at several times what the wholesale value would be. The main reason for this is that the domain is in fact worth more to the end-user. They are buying it to build a company and make the most use out of the domain.
End-user sales of brandable domains vary drastically
The Meet.me sale may have made sense to MeetMe.com, but a different end-user may have only considered paying low 5-figures or possibly less for the domain. Domains sell for what a buyer will pay for them, and ultimately different buyers have different opinions of value on domains.
Brandable domains especially vary however because there are less metrics to go by to help evaluate it. A generic domain will have searches per month, average cost per click an advertiser would pay, even possibly existing targeted traffic. All of these things wouldn’t be likely for the typical brandable domain to have, so evaluation becomes more of a gut feeling than an analytical process.
Outliers are everywhere
Clearly we know that end-user sales come higher than wholesale, and end-user sales can vary quite a bit, but what about the extreme cases? Dudu.com recently sold for $1 million, well beyond what any similar domain has sold for. Sometimes you’ll see domains that sell for 5+ figures with very similar domains available for registration.
The more you’re used to seeing such sales, the less weight you’ll put on them, understanding that they don’t necessarily reflect a pattern of value. Some people however will rush out and buy many related names and pricing them nearly as high as the sale, hoping for a similar score. They find out the hard way what an outlier means and why they’re often ignored in statistics.
The fact that comparable sales alone aren’t an indicator of value is part of what makes domain evaluating so difficult. There are no shortcuts or resources to guide you to the likely value of a domain. Only with years of experience looking at tens of thousands of sales and researching millions of domains can evaluating domains start to become second nature, and even then, there are surprising sales nearly every week.