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Optioning? Yes, Optioning.

Posted on 30 November 2012 by Andrei

About a day or so ago, Francois announced that eCop will make it possible to make money by selling a domain without actually buying it (click HERE for more details). In my opinion, it’s an option (no pun intended) that a lot of domainers might find interesting and let me explain why.

Let’s assume you notice a domain at a price you consider low enough to make the upside potential tempting.

But what if it’s a very expensive domain and you can’t risk that much capital?

Well in that case, eCop has a solution for you.

It works like this: you basically pay the seller $x for the right to be allowed to find a buyer and keep the entire difference between the amount you sell it for to the buyer in question ($y) and the sales price you agree on with the seller ($z).

In other words, you pay $x in order to ultimately make $y – $z – $x – eCop fee in case you find a buyer.

The eCop fee is $50 if you don’t manage to sell the domain or $50 + 1% of the sales price if you manage to sell it.

There are two possibilities:

1) if you find a buyer, you keep $y – $z – $x – eCop fee, as mentioned previously

2) if you don’t find a buyer, eCop gives the domain back to the seller and you lose $x + $50

How much will $x be?

According to eCop, a fair amount would be:

$100 * month + 1% of sale price

So let’s assume the seller would be willing to sell the domain at $300,000.

If you want to pay for the right to be allowed to find a buyer and keep the entire difference between $y and $z (in our case, $z is $300,000, so the amount the domain owner is willing to sell the domain for) over the next 12 months, you’d pay the seller:

$x = $100 * 12 + 1% of $300,000

In other words, the seller receives $4,200 and you would have 12 months to find a buyer.

So far, we know this:

$x = $4,200

$z = $300,000

eCop fee = $50 if you don’t sell the domain or $50 + 1% of the sales price if you do

What about $y? Well, let’s assume you’re able to sell it for $450,000.

In that case, $y is obviously $450,000.

So the two possibilities are:

1) If you end up selling it, you’d make $150,000 ($y – $z, in other words $450,000 – $300,000) minus the option fee ($x) and minus the eCop escrow fee.

The option fee is $4,200 in our case and the eCop escrow fee is $50 + 1% of the sales price $y.

So all in all, you’d make $150,000 – $4,200 – $50 – $4,500, in other words $141,250.

2) If you don’t end up selling it, you lose $4,200 and eCop’s fee which is a fixed $50 if there’s no sale. In other words, you’d lose $4,250.

To sum it all up:

1) if you sell it within 12 months, you’d make $141,250

2) if you don’t sell it within 12 months, you’d lose $4,250

You’re basically paying for the opportunity to generate almost as much as you would through a traditional sale (through a traditional sale, you’d generate $y – $z and through optioning, you’d generate $y – $z – $x – eCop fee; keep in mind that $x + eCop fee represents a small percentage of the amount you’d make) while only risking (in our example) approximately 1.42% of the amount you’d risk in a traditional sale.

I think it’s a very interesting service and wish Francois (the owner of eCop) all the best.

The service has been launched yesterday so if you have a deal in mind, click HERE.

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