From time to time I will include commentary on this blog re domain valuations. There’s a lot of folks who think domain name valuation is mostly science, and it is BTW, however it’s not the sort of science they are thinking.
What matters in domain valuation is the same thing that matters in real estate, what the value is to me. Some people are willing to live in a trailer because it’s relatively inexpensive, others prefer to live in cookie-cutter rentals and condos and others will spend the money to own at 15 CPW. Of course much of the decision re which strata to live at is relative to income and balance sheet – that matters too.
If the apartment valuation is relatively easy, you know generally that to live in a cookie cutter one bedroom condo in Chelsea you can do it for under a million bucks. On the other hand, if you want 5th avenue or CPW you’re going to have to shell out big, in the case of 15 CPW and the like you’re talking big big. Why? Because these properties are rare.
Cookie-cutter apartments are a commodity, you sell them at auction because they’re so generic. Higher floors pay a small premium, view get a premium, outdoor space gets a premium. You could buy a cookie-cutter sight unseen from a floorplan and pics and be safe.
On the other hand, apartments in special properties in the class of this Stern building are about something different, you could spend an extra 10 million over the price of a similarly sized apartment on Park avenue for one of these. So how does this process become science? Well, first you have to recognise real estate universe is a multi-modal. You can’t arrive at a valuation for trailers, cookie-cutters and Robert A.M Stern buildings using the same tools. A trailer you could sell at auction, it’s a simple commodity that depreciates and requires maintenance. A cookie-cutter you could but at auction with relative certainty you could resell it at a price close to, above or below, what you paid. 15 CPW is about situation, does the purchaser really want that apartment, is it something special to him, does paying 10 or 15 million over a similar floor plan really matter when the property is perfect for the purchasing executive’s needs (i.e., family, pleasure, etc.) and the incremental dollars are not relevant to the decision.Well, same in domains. There’s a lot of trailers and cookie-cutters that are relatively easy to value, there are a lot of folks who will make an appraisal for you just as real estate appraisers do for many cookie-cutter buyers. They will measure the domain equivalent of square feet and add or deduct from the estimate if it’s a .com or .net name. And they can also be wrong, just like real estate appraisers and any other appraiser. Just because you have an appraisal it does not mean that price will clear the market on any given Sunday.
However, when it comes to the special domains, the price is determined by the number of people who have the capacity to purchase at prices comparable to 15 CPW. Putting such a domain in an auction as once can do with cookie-cutter names and cookie-cutter apartments, trailers as well, does not compute. Why is it do you think there are real estate brokers who only handle building on CPW, Park, 5th and the like?
Here’s a hint, if you think can be one of those top-tier brokers you should go for it. These folks have a much easier time of it, they live in 5th avenue and CPW apartments themselves. How? They understand that auction market apartments require volume, in their market they put food on their tables (at NY’s best restaurants) by knowing the buyers. And the buyers are repeat buyers and sellers, they have divorces, children and situational changes. Same for corporate properties in fancy buildings and special domain names, these corporations have the wherewithal to make purchases at prices that may appear high to an outsider. Think 15 CPW and the gossip pages. And remember these prices are real, the buyers are happy and the brokers are happy.So today’s take home is (a) domains are a multimodal population, one doesn’t appraise let alone sell or buy premium names with cookie-cutter mentality, (b) people with big money can buy at 15 CPW, same goes for premium names, and (c) if you’re thinking of being any sort of broker, think twice before going into a commodity business unless you are 100% certain you have better operating leverage and can attract the volumes you need to survive when competition is only a click away.
That’s it. My simple 2 cents re domain valuations.
