Buying a new or unlisted domain on the Internet has long been routine. You just have to choose a service provider (GoDaddy will do… as will any other provider), pick your domain, check it’s available, pay the fee - and you’re done! But entrepreneurs often want more than a free or cheap domain. They want a premium domain, something with a short, catchy name that explains exactly what the company does. That usually means negotiating with the individual or company that already owns it. And more money of course.
Do you really need a shiny, expensive domain? Among others, it depends on your business needs, your customers, your product, your marketing strategy, etc. There is no doubt that in some cases, a great domain can make a difference, however given the massive use of apps in the online market today (which according to some research is still on the increase), it is far from certain to assume that a great domain is as important as it was when the world was dominated by websites and desktop browsers rather than apps and mobile devices.
Another reason that used to justify buying premium domains (even if you are not sure that you actually need them…) is that such a purchase might be a good investment. I do not agree with this justification at all. First, the market for premium domains seems to be cooling down these days. Second, you should obviously invest directly in your business, not in domains that can be sold and (maybe) earn you some money back only if your business fails…
“Good” domains bought second hand are always more expensive—sometimes much more expensive. Not only do those domains (might) have a commercial or marketing potential with a value of its own but their owners will also want to make a decent profit on their investments. The problem is that the seller is completely anonymous to you. You have no way of knowing whether they’re a crook or an honest dealer and since you’ll have to make a significant investment in this domain, you’ll want to protect that investment. What could go wrong?
First, if the expensive domain you just bought is not legally owned by the seller, you may find yourself a victim (or worse, an accomplice) of domain theft, changing domain ownership registration without the domain true owner’s permission. The sale of domains without their owners’ knowledge by people who took control with just a password and username happens every day.
Alternatively, you might make the payment then encounter “technical problems” when transferring the domain (whether caused by the seller or not). Finally, you could find that the new domain has a long history of claims from users and others related to activity that took place before you bought it. The previous owner might owe money to users, or the site that operated on the domain might have broken the law or infringed intellectual property rights. It could have done anything.
If you do decide to go through this process, a good way to reduce your exposure is to ask an escrow service to hold the funds until the transaction is complete. The escrow holder will be a company chosen by you and by the seller to retain the purchase amount while the ownership of the domain registration changes. Work only with trusted and professional escrow services that have been recommended to you and that don’t charge a fortune.
The escrow companies provide a standard contract that their users have to sign but of course, like any standard contract, the terms don’t necessarily favor the seller or the buyer. Depending on how sophisticated the contract is, you might want to change parts of it for your own benefit.
There’s always room for negotiation, especially when dealing with large amounts of money, so sometimes it’s worth signing a separate agreement with the seller and with the escrow company. These are some of the protections you should consider demanding (if not already included in the escrow agent's agreement):
The seller must guarantee that he is the sole owner of the domain and that the domain is free of liens and other rights held by third parties. You don’t want to find out later that the domain is mortgaged to the bank or that someone else had an option to buy it. That would expose the seller to legal action that could involve you too.
The seller must provide a representation that the domain has been properly registered in the appropriate registry and that any fees or payments related to the registration have been paid on time. You want to avoid any doubts about the seller's ownership of the domain and his right to sell it.
The price of the purchase should be clearly stated and the agreement should state whether it includes taxes, who is responsible for paying the escrow fee, and so on. You can agree that the escrow fees will be shared equally by both sides.
You should make sure that once the ownership of the domain registration has been transferred, the escrow service will confirm to the buyer that the registration is complete. The buyer should be able to check the registration and make sure there are no problems for a number of days agreed in advance. The escrow service will hold the funds and will only release them to the seller at the end of the period if the buyer has not raised any claims.
If there is a problem with the transfer of the domain registration that lasts more than the agreed number of days, the escrow holder must return the purchase price to the buyer. That protects the buyer from not receiving the domain and being unable to get their money back, preferably without any deductions or fees…