A domain name is more than a website address/URL. For serious businesses and companies, it’s their identity and brand on the web. There are lots of options, but millions of companies spend good money to buy the best quality domain they can. It’s no wonder why 99% of the top Fortune 500 Companies in the US use a .COM domain extension for their website. Although you don’t need a .COM to create a successful business online, it definitely helps and can speed up growth.
Domain Value
Not all domains are created equally. There are various factors that go into domain valuations. In real estate, the appraisal of property is defined as “an unbiased opinion of the nature, quality, value or utility of an interest in, or aspect of, identified real estate.” The same could be said of domain names, which can be viewed as the real estate of the Internet. Let’s discuss the different characteristics that affect the value of domain names.
Domain Extension
.COMs are often referred to as the king of domain extensions or gtlds. In the domain aftermarket, .COMs command the highest prices among all the domain extensions. But there is good reason for it; .COMs were the first domain extensions to be introduced to the public and it is the most widely recognized. When people generally think of a website address, they usually think of a .COM. It’s been ingrained in people’s minds for as long as the Internet has been around.
Along with .COMs, there are other legacy domains that have steadily remained 2nd and 3rd spots – .NET and .ORG. In recent times, some of the newer domain extensions have gained popularity among startups and younger generations. These include extensions such as .iO, .Ai, .CO, .ME, .TV and more.
A domain extension (or gtld) can be seen as the equivalent to a city or a neighborhood in the real world. The better or more in-demand the neighborhood is, the higher the value. Likewise, an extension higher in demand commands a higher price.
Character Length
Typically the shorter the domain, the more valuable it is. Why? Because from a branding perspective, it’s easier to remember and mostlikely more marketable. Also shorter domains are more in demand by end-users and investors which drives the prices up.
Keywords
Exact match domains (EMDs) or dictionary keyword domains also are high in demand because of their intrinsic value just like short domains. Practically all common dictionary keywords and phrases were registered years ago. I mean who wouldn’t want generic keywords like “car loans” or “phones” as their business domain name?
Brandability
Not all companies use keywords as their brand. Some companies may prefer to use a company name that is made-up or even a name that comes from the sound of noise. A good example is Yahoo. Yahoo is a made-up name that we associate with a sound that people make when they’re excited. Other examples include: Netflix, Costco and Microsoft. Although they didn’t have intrinsic value prior to their success, they had characteristics that made them brandable… such as length and radio test.
Comparables
Again similar to physical real estate, some domain investors and domainers use comparable sales as a factor to help price their domain names. There are a few industry websites that offer sales data and search filters you can use to find similar domains recently sold. In real estate, it’s called Sales Comparison Approach and sites like MLS, RedFin and FNC can be used for comparable home prices.
Radio Test
Radio testing a domain is important. When you pronounciate the domain, does it sound good? The better it sounds rolling off your tongue, the better it is. Does the name flow, or does it sound awkward when spoken? Also if you heard the domain mentioned on the radio, would you easily be able to spell it or would the audience have a tough time trying to figure out the spelling?
Hyphens
Generally hyphens and numbers mixed in with letters lower the value of domain names. This is not to say that, you can’t gain success with a domain like this, but again this is more of a branding concept for online businesses. People generally like clean and simple looking domains. There is an exception though – companies in Europe aren’t too bothered by hyphens in their domain names.
Domain Age
Some people like older domains and some don’t care. Aged domains could have correlation to higher quality simply because of the idea that most of the good domains were registered long time ago. I believe there is some truth to it.
The value of domain names basically comes down to simple economics: supply and demand. You may be able to find some low to mid quality domains available for registration, but it’s almost certain that 99.9% of all high quality domains are already taken.
Domain History/Profile
This is a unique factor because the value comes from the domain’s historical data, and not necessarily from its intrinsic profile. For example, domains that were once developed into a site and have a considerable amount of backlinks, may be sought after by SEOs and entrepreneurs. The reason why SEOs and entrepreneurs are attracted to these types of domains is because of the pre-existing SEO boost they may receive by building websites on them. If you pay attention to the aftermarket, you will sometimes see these types of domains fetching premium prices.
Seller Motivation and Financial Situation
Last but not least, the seller’s intent and financial situation are big factors when it comes to pricing domain names.
Domain wholesaler – These domainers flip/resell to other domainers or investors, so they typically price their domains on the lower end. Their intent is flip for a quick profit and cashflow. In some situations, the domain owner may not be someone in the domain industry and could decide to sell their digital assets because they are in a financial bind.
Domain end-user sellers – These domainers acquire and hold domains to sell to the end-user market. This means they usually price their domains on the higher end to maximize profits. Their intent is to maximize profits, so they don’t mind holding their domains for as long as needed to achieve their desired profit margins.
Thoughts on Automated Domain Appraisals
With all that said, I know there are many automated domain appraisal tools on the web, and the results vary greatly from site to site. My advice to you would be to take them with a grain of salt. Use them for entertainment or a rough estimate, but I’d recommend not using them to price your domains. You’ve done the research on your domains and you’re the expert. Pricing domains is more of an art than science. Also, the seller’s motivation and financial situation are big factors in pricing domains, and its something that automated domain appraisals do not take into account.