Most domain name brokers require an exclusivity agreement before they begin to sell a domain name. The agreement protects them from getting screwed if a domain owner sells a domain name that they have agreed to broker. It also requires that the owner agree to a commission during a period of time, whether or not the broker closed the deal.
In the past, I found myself torn when deciding on giving a domain broker an exclusive listing for one of my domain names. Having to pay a commission regardless of if it was earned is less appealing to me, but there are plenty of benefits to an exclusivity agreement.
I’ve had a number of discussions with domain brokers and investors regarding exclusivity, and I can respect a broker’s need for exclusivity. Here are some pros and cons to signing an exclusivity agreement with a domain broker:
PROS:
- Broker is pledging to work on behalf of the domain name owner to sell the domain name.
- There is a set amount of time in which a sale needs to be consummated, incenting the broker to work more quickly and efficiently.
- Less anxiety on the broker’s part that the domain owner will not pay the agreed upon commission.
- Past buyer may agree to buy a name that they had been considering for fear that a broker will find a better prospect.
CONS:
- If a buyer lands on the landing page and agrees to buy the domain name without any broker intervention, commission needs to be paid to the broker.
- Agreement may list a minimum sale price and prevent the seller from lowering the price to close a deal with someone else (example: I give Sedo exclusivity with a $100k minimum. Sedo broker is working hard for the $15k commission, and if I sell for $50k, the commission is halved, without regard for broker’s time/expenses).
- Can cause a delay in a sale if domain owner has a buyer and wants to wait out the exclusivity time period.
Some exclusivity agreements can be negotiated to protect the buyer. Depending on the broker or brokerage as well as the domain name, some of these terms can be negotiated:
- Length of exclusivity period
- Lower commission if buyer isn’t found by broker but is found by other means.
- No commission paid if sale is made to a buyer that had engaged the domain owner before.
What are your thoughts on signing exclusivity agreements with domain brokers? Can you share any advice?
Difficult call as there is a duty of care on the part of the broker have to do more than put up a cardboard parked landing page, personally I compare the parked sale page and the one’s DNS use for the in-house sales, little wonder I am pulling out to create my own.
The right way to setup a transaction like this in my opinion is as follows:
Seller pays an upfront fee for broker marketing their domain. Let’s call it $1000 on a name that someone want’s $1,000,000 for. Or call it $250, whatever.
They pay the fee to compensate the broker for the work they have to do after determining that the broker is qualified to put in a good faith effort to market the domain. (Which is not just sending out some emails). The fee would cover any marketing expense (as agreed to) as well as something that says “I’m serious about selling this domain” to the broker and compensates them slightly for their time.
The agreement is not exclusive in a legal sense but it would be understood that the seller won’t allow other brokers to handle the same sale during the time period. Let’s call it 3 to 6 months.
The brokers fee is given in the following circumstances:
a) Anyone they have contacted and had interactions with for a period of 1 year past the first contact. (Subject to a haircut if they don’t do the negotiations. You don’t deserve 10% if the buyer went behind you back but you do deserve something for getting the buyer to go behind your back)
b) Any sale they negotiate (obviously).
c) Any sale (see “a”) that can be reasonably determined to have happened as a result of something the broker did to make the buyer (who could have went behind their back) contact the seller.
d) Should the seller sell to someone who isn’t covered by a-c during the exclusive time period (let’s call it 3 to 6 months) the broker gets something but certainly not 10% (or whatever). In other words you don’t want to put in effort to find out that the seller has just dumped the name.
e) Broker has right to first refusal on any price you have negotiated to sell the name to someone else (during the 3 to 6 months). (For example you might have told them $75k my bottom and they acted accordingly. Then you sell it for $50k and they say “well you never told me that I could have done that”. Once again some money is due how much is the question.
My point is there is a way to structure this so the broker feels comfortable putting in effort and the seller doesn’t feel they owe money no matter what.
When I do domain buys for companies I charge both an upfront fee and a final value fee. I don’t do any work unless someone is serious enough to cough up money in advance. (And people pay this fee).
Thank you for sharing your insight.
You brought up some excellent points.