Before you purchase or sell your car, you try
to find its Blue Book value, the value of comparable models, and
the best transaction venue (online, a dealer, a newspaper); you
also investigate alternatives to purchasing (such as leasing)
or to selling (such as donating to a charitable organization).
When acquiring or selling domain names, shouldn’t you do the same?
A person who is interested in acquiring the
additional cash flow that the control of a domain name may generate
has two options: to purchase the domain name or to lease it. On
the other hand, a domain-name owner has to find the highest value
among selling, leasing, donating to a charitable organization,
or keeping his intangible asset.
Below are the different situations where a
domain-name appraisal becomes valuable information, aside from
revealing its fair market value.
(1) Buying
a. Determining Reserve Price: A buyer should acquire an asset
only if the value of its expected future benefits is greater than
its acquisition price, i.e., if the acquisition’s Net Present
Value (NPV) is positive. Thus, a buyer needs to establish the
reserve price (the maximum price) she should pay to acquire a
domain name and therefore needs to obtain an estimate of its fair
market value. The value of expected benefits is largely driven
by how the domain name will be used and thus varies with each
buyer.
b. Assessing Tax Impact: When domain names are part of a portfolio
of assets obtained through a merger or an acquisition, the acquiring
company needs to value each of the assets in the portfolio, so
as to determine the correct accounting amortization amount. Although
there are no explicit amortization standards for a domain name,
it is typically treated as an intangible asset.
(2) Selling
a. Determining Reserve Price: One would sell an asset only
if the sale price is greater than the value of its expected future
benefits to the owner, i.e., if the sale results in a positive
NPV opportunity to the seller. Thus, obtaining an estimate of
the value of its benefits or its fair market price is required
to establish the reserve price, the minimum price at which the
seller should relinquish a domain name.
b. Determining Auction Type: The best type of auction to use
in the sale of a domain name depends on what bidders perceive
its value to be. A seller can use the difference between the pre-appraised
perceived value and the appraised value as an indication of whether
potential bidders are expected to over- or underestimate each
others’ bids. If, for example, a seller expects bidders to overestimate
each other’s maximum bid, the domain name should be sold through
a sealed-bid auction. (For further discussion of best auction
types, see Domain
Name Auction Strategies.)
(3) Leasing
To determine a lease rate, one must first establish the value
of the domain. (For further discussion of leasing domain names,
see How Much to Lease Your
Domain Name For?)
(4) Making Charitable Donation
An appraisal report from a reputable domain-name appraiser
serves as a certificate for tax-deduction claims.
