Here's what I believe is wrong with all appraisal models.
Unlike homes and cars that have a long history of sales and market comparisons, there is currently no equivalent in the domain name industry. As a result, domain appraisals lack credibility and are virtually meaningless for purposes of moving closer to a liquid market. If appraisals were actually a meaningful approximation of domain worth, we could all be taking out loans that represented 25% of our appraised portfolio value.
My guess is that the domains that would actually support a 25% loan to value ratio don't look anything like the portfolios assembled by 99% of domainers. If you want to create a successful model for what any given domain name is worth right now, there is only one way to do it:
Instead of asking:
โWhat is your best guess as to the worth of this domain?"
I would suggest asking:
โIf there is any price that you would pay right now to purchase the domain name shown below, what would that price be? Of course, your stated price would mean very little unless you actually intended to purchase the domain for this price if given the opportunity. So think carefully before you proceed - because for a period of 48 hours following your estimate of actual value, the owner of the domain name will have the opportunity to accept your statement of value and sell you the domain name at your stated price."
In other words, for purposes of arriving at an accurate valuation, this statement of value will be deemed an offer to buy that must be honored for a period of 48 hours.
Now, while this might sound crazy at first impression, this is the best way to develop a "low-book" accurate, liquid value for domains names that are each very unique in their own way - as opposed to stocks, bonds, other financial instruments or fungible goods. While real estate may be a good example for purposes of demonstrating the power of domain names, for purposes of appraisal, what works in real estate will not work for the great majority of domain names that are not the one or two word category killers that we all hear so much about, but in reality, represent far less than 1% of domains available in the marketplace.
Like cars that have both a wholesale and retail value, domain names are no different. As stated above, when a domainer offers a statement of value, it should be considered wholesale or โlow bookโ. For retail valuations, you must ask the same question set forth above of a potential retail end users who must also be prepared to have their domain valuations deemed a 48 hour offer to buy.
Here's the kicker:
The immediate consequence of this domain appraising model will be the humbling discovery that thousands upon thousands of domain names have zero liquidity, and with rare exception, arenโt worth much more than reg fee. It will also become disturbingly clear that even more domain names are just plain worthless.
Initial offers could then be made available to thousands of other domainers (or in the case of โhigh bookโ - to potential retail purchasers/end users) who, not knowing whether the initial values would be accepted or not by the owner, would be free to โbid-upโ the current, binding estimation of value. While this approach may share certain characteristics with the traditional auction process, the dynamics are much different in that domain owners are finding out whether anyone would be willing to pay any amount at present, and the expert appraisers would be asked to back up their expert talk with action. Otherwise, I'm not interested in opinions of value.
For example, if I clearly believed a domain name was worth $100, I should have no problem offering to value (and buy it) for $25. This would create a liquid, low end of range, beginning value. Now if the truth of the matter is that I am really not willing to buy a $100 domain name for $25, what we have just discovered is that not only is the domain not worth $100, it is not even worth $25. What do I need an appraisal like that for?
What Result?
So if I pay $25 or $30 to one of the major registrars for a certified appraisal, and then immediately offer to sell them that same domain at 50% of their appraised value, what do you think would happen? If the big guys really believe in their certified appraisals, they should make a limited time offer (maybe 48 hrs?) to purchase the name for a lesser, fixed percentage of that value. If they won't do that, it speaks volumes. In addition, you couple a "limited, guaranteed offer to buy" appraisal like that with an appraisal fee that is based on a reasonable percentage of the actual appraised value (not $30 to appraise a domain worth $20) and now we're starting to move toward a liquid domain market!
Make no mistake, third party services like Estibot provide me with invaluable information and metrics that offer tremendous insight and opportunity to make domain buying and selling decisions, but sometimes, for all the reasons set forth above, I'd prefer that the estimate of value would be left out. In addition, when Estibot offers an appraisal score card following a major auction event, I'd like to see Estibot include all the domain names that didn't receive a single offer, yet had reserves well below the Estibot appraisal value. In my opinion, that would provide for a more complete overview.
The good news to implementing an appraisal model such as this would be a supportable, initial value that should be entered into a central database for those domain names that receive valuations/offers. Over time, this data base would not only establish a clear record for domain values at or near the time of the appraisal, but it would demonstrate the distinction between domains with present, liquid value and those without โ moving the industry a step closer to offering greater liquidity and ending the expensive and wasteful practice of registering worthless domain names that have little hope of ever turning a profit in the resale market.
No doubt, the ideas set forth above could be improved on, but at least let's begin the discussion.
