Understanding Domain Name Valuation & Appraisals

Submitted by Spencer Yao on

I was hired by a Fortune 500 company to help them value a portfolio of 600+ domains they accumulated over the years and wanted to sell. From this project, I wanted to summarize the analysis and educate our readers to the major factors in valuing a domain name. You can use this information to help if you are thinking of buying a domain name in the aftermarket (from companies such as Sedo or BuyDomains) or to assist in appraising a domain of your own for possible sale.

I will use premium domain names to help explain the valuation process. A premium domain name is a domain that has already been registered (ie you cannot register it for $1.99 on Yahoo Domains) and can be expected to sell for at least thousands of dollars. The majority of domains are not “premium” despite the claims of the owners and brokers, but this analysis applies to all domains. It is also somewhat subjective which domains are premium - for example, you would not think MLB.com is a premium domain name until Major League Baseball wants to buy it from you.

DNjournal.com tracks the top domains per year and below of a list of the top domain sales for 2012. These are clearly premium domain names and helps us segue into the 6 types of domains.

Rank Domain Name Price Sold Date Sold
1 Investing.com $2,450,000 12/14/12
2 PersonalLoans.com $1,000,000 2/29/12
3 FreeWebsite.com $500,000 11/7/12
3 WebHosting.co.uk $500,000 10/31/12
3 Challenge.com $500,000 10/13/12
3 Jackpot.com $500,000 4/18/12
7 GiftBasket.com $350,000 11/21/12
8 VI.com $325,000 10/13/12
8 BJ.com $325,000 6/6/12
10 60.com $310,000 5/9/12

Premium domain names can be segmented into the following six categories, with Generics being the most valuable type.

  • Generics – Generic names like loans.com, candy.com, acne.com
  • Geo – Geographic domains like California.com, Thailand.com, or Dallas.com
  • Trademark – Trademark names like homedepot.com, botox.com, ipod.com
  • Typos/Misspellings – typos/misspellings like homedepo.com, Appel.com, diamondss.com. These have become less valuable as companies have been suing for trademark violations.
  • Adult – pornography and adult domain names
  • Combinations - Trademark misspellings, Generic typos,Geo generics like dallasloans.com

Listed below are the four major factors that drive the price or value of a domain name- the biggest factor is “development potential” which is the ability to turn the domain into brandable website business. Obviously, development potential is somewhat subjective, but can be broken down by the factors below:

  1. Top Level Domain Extension
    1. .com versus .net,.org, etc
    2. .com most valuable
  2. Number of Letters/Length of Name
    1. Loans.com vs. Bankloans.com
    2. Shorter names are generally better than longer ones
  3. Traffic & Monetization
    1. Existing traffic
    2. Revenue generated, if any
  4. Development Potential
    1. Brandable, with few or no substitutes
    2. Clear commercial intent
    3. Maps to common search term
    4. Industry/Topic related

In summary, the most valuable domain names will be short, generic domains with a .com extension, clear commercial intent, and high development potential - think Candy.com for a candy seller or Toys.com for a toy company. Existing traffic is always a plus.

If you are thinking of trying to sell your domain name, please be aware the domain market is highly illiquid with only a small handful of buyers willing to pay full price for a premium domain. A prime example is Candy.com. It was held for 11 years before it was finally sold to an online candy seller for $3,000,000 back in 2009. Remember that most domains are not premium and people will just register some variation if the name they want has already been registered by someone else.

If you have specific questions about how to value your domain name or where to buy and sell domains names in the aftermarket, please post them in our Ask a Question section. In another article, we will summarize some tools and procedures that will help you put a price on a specific domain.