Today, I will put the domain name selling process under the microscope and refer to the most important aspects which pertain to the anatomy of a sale. First of all, I would like to highlight the most important dimensions: the parties involved in the sale, the negotiation tactic, the deal closure process and the post-deal capital allocation process.

Let’s start by analyzing the parties usually involved in a domain name transaction. In most cases, there is only a buyer and seller involved. However, in certain situations, a third-party which acts as a broker can also take part in the transaction. We’ll start by simply analyzing the most common parties, the buyer and the seller. First and foremost, we have to understand the fundamental goals of each party. This hardly involves rocket science. The buyer wants to acquire an asset at the lowest possible price, whereas the seller wants to move inventory for as much money as possible.

It may seem that the interests of the buyer and the seller are 100% divergent, but in fact, they are aligned when it comes to the most important dimension: both parties want to close a deal. The buyer genuinely wants to acquired the asset in question, which is why he’s interacting with the domain owner in the first place and the seller is interested in parting with his domain for a reasonable price, which is why he’s willing to negotiate. A constructive negotiation revolves around the fact that both parties are willing, within reason, to get a deal done. Whenever brokers are involved, the situation tends to become a bit trickier. On the one hand, brokers tend to be even more willing than buyers and sellers to get a deal done because otherwise, they usually don’t receive any kind of financial compensation. While it is true that certain brokers do charge some kind of an upfront fee, most people limit themselves to receiving a certain percentage if and only if a deal ends up being sealed. On the other hand though, it is important to know exactly where the loyalty of the broker lies. This is one of the biggest issues in our industry, in fact. Is he representing the buyer, the seller or both? In most cases, the loyalty of a broker tends to lie with one of the parties and identifying how things stand is pretty important to the overall development of the negotiation.

As can be seen, the most important aspect by far that we need to keep in mind when analyzing the parties involved in a negotiation is the fact that all of them want to get a deal done. The actual negotiation method that is to be chosen depends to a large degree on the nature of the parties involved in the negotiation.

The most important question you have to ask yourself as a seller before choosing the negotiation approach is exactly how willing you are to sell or better said, how eager you are to sell. The more eager you are to sell, the weaker your position in the negotiation becomes and the less impressive your prices expectations will have to be. A good example when it comes to one of the extremes, an example of a person who is anything but eager to get the deal done and who is willing to wait in order to obtain a good price is Rick Schwartz. As a lot of you know, Rick hasn’t closed all that many deals throughout his career. Perhaps a handful of deals per year, if that. However, since he is willing and able to wait for the perfect selling situation to come, the sales prices he ends up accepting are extremely high. So high, in fact, that pretty much each and every sale he closes can be considered career-altering. On the opposite end of the spectrum, an example of a person who is eager to sell is let’s say someone who tries to sell a domain to other investors on forums or other venues. The person in question probably chooses to sell because he is in need of quick capital and therefore, he cannot afford to wait for the perfect end user to come along. Unlike Rick Schwartz, the price expectations of such a domain investor needs to be considerably more let’s say tame. These are, if you will, the two extremes when it comes to the willingness to sell of a domain owner. The more in need of capital you are and the more willing to sell you are, the more flexible you will have to be.

Now, let’s also pay some attention to the other dimension, the eagerness of the buyer to purchase the domain in question. The ideal situation is selling to an end-user for which your domain represents the best possible fit. In other words, to an end user who has no other domain choice which matches yours in terms of relevance. For example, a plumbing company from Chicago for which the ideal domain is without a doubt represented by ChicagoPlumbing.com. If you are the owner of ChicagoPlumbing.com, you know for a fact that your domain represents without a doubt the ideal choice for all Chicago plumbing service providers. Now sure, they could simply go with for example PlumbingChicago.com or Chicago–Plumbers.com or ChicagoPlumbers.net or Chicago.Plumbing and so on but these domain choices represent the next best thing at best. Again, the ideal situation is the one in which you are confronted with a buyer who absolutely and positively must have your domain and nothing else. In a lot of other situations, the buyer isn’t as eager to purchase your asset for the simple reason that she has other choices available. For example, if the plumbing company doesn’t want to go with a geographic domain and prefers a brandable instead, then they have lots and lots of options.

SuperPlumbers.com, BestPlumbers.com, PremiumPlumbing.com and so on. Brandables are a good example of a situation in which lots and lots of options are available to the buyer who is contacting you. Therefore, if the buyer in question deems your financial requirements unrealistic, the person or organization in question can simply move on to another domain which is just as good. Therefore, whenever you are confronted with such a situation, you have to understand that the buyer is only willing to go so far price-wise. A not-so-good situation you can find yourself confronted with is owning the exact opposite of the best possible domain, in other words a lower-quality domain which doesn’t represent the best possible fit for the company in question. In that case, since you’re only the runner-up solution or perhaps even worse, your price expectations need to be more than realistic or else you’re you’re going to lose the sale.

As can be seen, the negotiation approach you have to choose as a domain seller depends on variables which have to do with your own willingness to sell and on how you perceive the eagerness to buy of the other party.

Theoretically, the highest prices tend to appear when you as a buyer are not exactly eager to sell and you are dealing with a seller who is extremely motivated to purchase your domain. The next best scenario is you being eager to sell and dealing with a buyer was eager to buy. In this situation, all of the advantages presented in the previous example are there but since you are also eager to make money and since you probably need capital as well, you will probably end up settling for a lower price than if you were in the previous situation. If neither you nor the buyer are willing are extremely eager to close the deal, then in a lot of cases, a deal will simply not materialize. It will be probably harder to find common ground in such a situation and as such, the two of you will probably agree to disagree. Another less than fortunate situation is you as a seller being very eager to sell the domain name in question but dealing with a buyer who is not as eager to buy. In such a situation, if you want the sale, you will probably have to lower your price expectations quite a bit and this, of course, is not exactly a situation domain investors dream about.

As far as the actual process of closing the deal is concerned, I only want to say this much: the deal isn’t finalized until you have the money. Things can happen, buyers can back out and so on… c’est la vie.

Finally, I want to refer to something just as important as the negotiation process: what you do with the money you generated through the sale. Now sure, I have nothing against the idea of taking money off the table, re-investing 100% is a surefire way to eventually end up broke. On the other hand though, I’d strongly recommend at the very least re-investing enough to offset the loss of the asset you just sold. The ideal situation is using the money you generate via end user sales to fund smart reseller market purchases. Rinse and repeat.

This post turned into a bit of a novel, so I’ll stop here, just wanted to share some (a lot) of thoughts pertaining to how I perceive the anatomy of a domain sale.