There is Nothing Wrong With Overpaying for Quality

Mar 27 2013

It’s a daily occurrence for me to get emails from people asking me if they paid too much for a certain domain.  If there is one thing my business experience has taught me, it’s that sometimes you have to overpay to get top quality things.  I can use a piece of farmland as the perfect example.

5 years ago someone approached me about buying 50 acres of farmland.  The price, $10,000 an acre.  The going rate of farmland in the area at the time was $6500 to $7000 but there wasn’t much coming up for sale each year.  But I didn’t want to be the guy that was known as the guy that paid the highest price in the county.  And at that time it probably would have been the highest price paid for straight farmland.  Fast forward 5 years.  Three weeks ago land next to that land (and a few blocks from the nursery) sold for a record $15,375.  A record that beat the previous record price of land just a mile away.  High quality land is not being made.  It doesn’t come for sale very available very often.   While the price isn’t going to go up forever, it will continue to get more rare.  It’s taught me that if you want the best of something there is a point in time where you’re going to have to overpay to beat out the others that want it.  You will most likely be under water for a period of time but eventually there will be the next guy that wants it and will be willing to be the new high.  In the mean time you will be labeled by many as the guy that paid too much.

The highest quality names are no different.  With top quality dot coms you are most likely going to have to “overpay” to beat out the other guys that want it.  Again, like the land, there will most likely be a point in time where you have paid more than anyone else is willing to pay.  If you had to sell it immediately you would most likely lose money.  But time will fill the gap and eventually move the price above what you’ve paid.  Of course, there are limits.  What is considered a “highest quality domain” is subjective.  Paying $50,000 for a domain that nobody else would pay $5,000 is a gap that probably never be filled.  I’m talking more in the 20-30% more range.

The most important ingredient in this approach is actually knowing a true premium domain.  Unfortunately most people don’t

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Outsmarting the Dumb, Outworking the Smart

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8 comments

  1. Acro

    Would you overpay for a prime rib at a restaurant? E.g. presented with a $15 steak and a $25 option – would a chef’s suggestion that you’d pay $35 for a ‘special’ cut be appetizing enough?

    The “over” part of “overpaying” indicates excess. Now, if you’re saying that in order to beat a competitor to a domain, you’d fork out more than what you initially planned to pay, that’s called stretching the budget.

    With intangible assets, unlike a regulated market such as gold, silver etc. one should be looking for bargains, in my opinion. And for that, experience in finding the gold nuggets is mandatory.


    1. Post author
      ShaneCultra

      Acro,

      You are talking commodities not one of kind premiums. Domains, land etc. I can get a piece of meat anywhere. You are bringing semantics into the word overpaying. Sorry I didn’t phrase it correctly Yes you are right as far as over meaning excess. Sure “stretch the budget” works and may be better. So let me rephrase it for you. There are times when you will have to pay more than the “going rate” for premium items. Like art, domains, and land. One should ALWAYS be looking for bargains but there will be less bargains the higher up the domain chart you rise. Thanks for chiming in.

  2. Adi Weitzman

    Shane,

    Given the choice now with buying that piece of farmland for $10,000 would you buy it? Also what would you grow on it? This has nothing to do with domain investing I am sort of a hobby farmer

  3. o

    I was raised hearing “Don’t buy it unless you can steal it” meaning don’t buy it unless you can get it for an exceptionally good price.

    A fine method for a while but even Buffett learned, when he diverged from straight Graham theory, that its better to pay a good price for a great business/product than a great price for a mediocre business/product. ‘Price is what you pay, value’s what you get’, as the old cliche goes…

    I recently made my first agland purchase and while it’s more for personal/hobby/retirement home site use, I’m starting to wonder if a bubble isn’t forming in that sector. Corn and soy are at record highs, prices of aglands are commensurate, basically everyone is waiting for the Bernanke QE helicopter money drops to work their way through the system so maybe its a good place to be for inflationary purposes but given the ongoing bloodbath in undeveloped commercial land, the gravedancing value hawk in me is having a hard time keeping a steady eye on ag.

  4. DoktorThomas™

    Value is in the eye of the buyer.

    Having survived a real flood, without reservation real estate that borders water is an undesirable location. Others will foolishly disagree.

    Quality is hard to buy in a plastic, off-the-shelf world where “everything” is “Hecho en China”. Stupidos who can “save a buck” are thrilled.

    Quality is hard to find when most buyers want a Mercedes and are willing to pay only Yugo prices. Daj mi červené auto!

    Quality is hard find when everybody has seven excuses why they can’t be at work this week, but they will be “in” next week for their vacation.

    Quality is hard to delivery when your workforce is 2.5 times bigger than it actually is (you’ll need to be a social scientist to understand this one).

    Quality is hard to produce or find when your government endlessly prints worthless dollars and forces use of them. Prelude to hyperinflation and generic brands.

    Quality is hard to produce when only the criteria demanded by the public is that your product be a cheaper price than the next guy’s similar product.

    Quality like art in other forms is generally not appreciated in a world of government run (name your choice of area or profession). “Schools” was the first choice, but too limiting; everything about the federal government destroys quality and pursuit of it.

    Lack of quality drives new businesses into the marketplace; that’s a good thing. ©2013

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