Using Social Facilitation and Other Powers to Increase Your Domain Auction Results

Dec 26 2013

While not defined in stone, there are certainly actions that will help you reach maximum dollar for your domain at auction.  Bidders tend to bid and even “overpay” if you cater to the psychological effects caused or related to auctions.

The easiest to play on is the “endowment effect”.  The endowment effect is where we tend to overvalue things we already own.  Domain investors do it all the time every time you ask for a quote on a domain price.  It’s not specific to domain investors. It’s anyone that is selling something they own.  There is a personal attachment that makes anything we own seem more valuable than it really is.  As a buyer you have to try and break that.  As a seller of a domain, you have to try and create it.  This can be accomplished by giving descriptions of the domain that makes you want to own it. Giving you ideas of what you could do with it.  Perhaps it’s age, or uniqueness.  What others have done with similar names and achieved success.  It all gives you that sense of “I want it to be mine”.  And when it’s yours it will become even more valuable than what you are going to pay.   Flippa and Sedo allow descriptions, yet most sellers merely pound out typical descriptions.  Or they become farfetched  with “this is awesome and you would smart to own it” type listings.   I also see a lot of “similar” sales that really aren’t similar.  Putting together the right description will certainly help.   I believe I’ve found success in my daily listings because the names have been separated from the others and made to seem special.  Not all my descriptions bring on the endowment effect, but they do provide some feeling of these names may be better than the rest simply because I’ve picked them out of thousands of names I’ve scanned.  Any list provides that feeling.  The trust of the “best of” writer determines the bump of emotion about that name.

Another auction play is using scarcity to promote value. I avoid this in domains because I don’t think it exists.  Every domain is 100% unique.  Yet I feel that another domain can can be found that could be used to serve the same purpose.  Scarcity is determined in the mind of the buyer and is a psychological scarcity.  You want the buyer to want that name and that name only.  I’m not sure you can build that as a seller unless they already have an entity that has the name and there is only one name that will work.

The most valuable of all of the psychological tools during auctions is playing on the value of victory.  Not that we needed proof but Princeton did a study proving that we will bid higher if we are bidding against someone.   Everyone wants to win. If they are competing against a computer or reserve they tend to give up because the value of victory against a computer is less.  We only play computers during practice or when we can’t find a human competitor.  Play a person?  Then we want to win.  It’s human nature to want to win and a few more dollars isn’t going to stand in our way.  The old saying is “it only takes two” to bid up an auction.  It couldn’t be more true than at the end of the auction.  We’ve all watched the last 5 minutes double the price.  Competition in anything brings on irrational behavior.   Getting the name is only half the fun.  Keeping someone else from having it is the other half.  Avoiding this behavior is why BIN is so popular.  Some buyers hate that process and would much rather just buy it and have it done and over.  No haggling, no fighting to find a winner.  So whatever you have to do to get more people to participate in an auction is a good thing.  The more people that start, the more likely you are to have two people that end up at the end.

Taking what we know above, it shows the value of the starting price of an auction.  If you start an auction with too high of a price you will lose people that may come back later and become irrational or pay more than they planned.   Getting more people to participate with a low starting bid brings on more people.  Many people are too cheap to pay for a reserve so the opening bid becomes their reserve.  Essentially turning it into a BIN.  You pay a little more with a reserve but if it ends lower than expected, it gives the buyer a true value of the name in a reseller’s market.  Which is info that most domain owners don’t want to know.  See endowment effect above.

As for reserve, many will try and guide you to not put a reserve on a name.  That bidders will pay more if they don’t see a reserve on a name. While it may be true that the “value of victory” effect will take over and drive the name up, my finding is that people either want the name or they don’t.  Seeing a reserve doesn’t scare away bidders if it’s the first auction of a name.  Competition will drive up the price and I find people that drop out because the name had a reserve, are not the people that were going to drive the name up in the first place.  On the contrary, I’ve had several auctions that had a bidder bidding up the price to try and find the reserve.  Names that would have ended at $200 but ended up over $1000 because somebody really wanted the name and was willing to go higher.  Auctions can take on many different results.  There is no sense selling a name for much less than you wanted to because it didn’t play out well on a given day.

And finally, a way to kill the psychological effects of auctions is to put up a name up for auction several times.  All of the effects listed above tend to diminish.  Nobody wants to own something nobody else wants.  The endowment effect is gone from the buyer’s side when a bidder is on their third attempt to buy.  It’s moved to the seller who seems like they have overvalued their domain.  I’ve have seen some names listed several times that ended up finding the right buyer.  Take  It had been up for sale on every platform but just sold on Flippa at BIN for $5K.  It’s more the exception than the rule. Was it finding the right buyer?  Finding the right platform?  My answer is yes.  Each platform has certain types of domains that do better than others.  I can tell you which auction house is best for which type of domain.  But then again I can’t give away all my info.  The key is for you to learn yourself or work with someone that knows.


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Outsmarting the Dumb, Outworking the Smart

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