Using an Option to Buy a Domain Name | DomainInvesting.com

Using an Option to Buy a Domain Name

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Last week, I wrote an article about a startup called Final that is using the GetFinal.com domain name for its website rather than the high value Final.com domain name. One of the commenters remarked that the company is a very new startup and likely doesn’t have the funding to buy the domain name right now. In a situation where a startup doesn’t have the funding to buy an expensive domain name, they might want to inquire about buying an option to buy a domain name.

Essentially, buying an option from a domain owner would entail paying a certain price now to lock in a price for a future purchase. For instance, using my own domain name as an example, for $25,000, I could sell someone an option to buy DomainInvesting.com at a strike price of $2,000,000 within the next 3 years. This means the prospective buyer pays me $25,000 today to lock in a $2,000,000 price at some point during the next 3 years. If they decide against buying the domain name, I keep the $25,000 and can sell the domain name to anyone else once the option expires.

There are advantages to both the prospective buyer and the domain name owner. For the prospect, the company gets to lock in a price that can’t be raised regardless of the circumstances. If the prospect raises tens of millions in funding or gets bought out at a billion dollar valuation, the domain owner cannot raise the price of the domain name above the option price. For the domain owner, he or she gets a sizeable, non-refundable fee up front and an agreeable sale price on the back-end should the option be realized.

Obviously, there is risk in a transaction like this. For instance, if the domain name is lost due to UDRP or lawsuit (or something else), if the domain owner goes bankrupt and loses the asset, or if something else happens to the status of the domain name, there could be trouble following through with the deal. Obviously a contract would provide recourse for the option holder, but it might not be easy to retrieve a domain name based on an option contract. Lawyers would need to be consulted to ensure both parties are adequately protected. Perhaps an escrow service could protect the asset during the option period.

I am sure there are people who have used options to buy a domain name, and I would be interested in hearing your thoughts on this.


About The Author: Elliot Silver is an Internet entrepreneur and publisher of DomainInvesting.com. Elliot is also the founder and President of Top Notch Domains, LLC, a company that has sold seven figures worth of domain names in the last five years. Please read the DomainInvesting.com Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest.


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Comments (4)

    John

    Now this kind of thread really blows the weekly brokerage thing away by a mile, and is just one of the reasons why this blog is worth visiting…

    October 14th, 2014 at 7:10 pm

    Brandon Abbey

    This type of transaction can be facilitated by Escrow.com We will take the terms of your agreement and incorporate them into our Domain Name Holding Agreement. I would strongly suggest doing your due diligence prior to selecting any company to provide such a service.

    October 14th, 2014 at 7:34 pm

      John

      You’re with them? You folks have been the “gold standard” for so long, such an asset to the world and the Web. I thank God for something as excellent as Escrow.com. :)

      In reply to Brandon Abbey | October 14th, 2014 at 7:43 pm

    jason Davis

    Hi Elliot,

    I have bought a website this way before. The price was 15k. I put down a non refundable deposit of $2500 and had 90 days to come up with the rest or to walk. During that time, I found a partner who put up the balance of the closing cost and I was able to negotiate a very good percentage of ownership which reflected a good deal more than the 17% I put down. I have since sold my stake in it.

    I also acquired a domain this way. This cost was $1000. I put down $200 and had 60 days or so to come up with the balance or to walk.

    It is a very good way to acquire domain names or websites if you need to lock up the asset in order to do due diligence or to find partners ( and you have the confidence that you will ) in order to close.

    I have a good friend who does this all of the time with real estate. It has allowed him to acquire many properties that were not for sale. He is now one of Toronto’s largest condo builders.

    I personally think this is a great way to do it.

    October 15th, 2014 at 10:34 am

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