When a domain broker represents a domain owner by selling a domain name, the broker receives a previously negotiated percentage of the sale as compensation for a successful deal. When a broker is working on behalf of a buyer, the compensation structure can not be set up in the same way, as that would pit the broker’s interest against the interest of the client:
I don’t discuss my proprietary compensation model publicly (it was developed in consultation with my clients) but you are on the right track. What I suggest, in general, is that the broker’s compensation model ALWAYS be aligned with the client’s objectives.
— Bill Sweetman (@BillSweetman) December 11, 2019
If I hire Bill Sweetman to buy a domain name for me, and my budget is $100,000, it would not make sense for me to pay Bill a percentage of the sale price. If the deal structure was set up this way, Bill would be paid more money if I bought the domain name for more money, and our interests would be divergent. I want Bill to score the best price for me, so he should not be paid more by not securing the best deal possible. The buyer’s broker should always be working on behalf of his client to get the best price, not the most money for a commission payment.
There are a few different ways brokers can structure deals to work on behalf of a client. I am sure there are more that I don’t list below, but some options include:
- Fee for working on behalf of a buyer with a set scope of work.
- Hourly rate.
- Fee plus a pre-set bonus for securing a deal.
- Fee plus a sliding bonus based on the ultimate sale price (higher bonus for securing a lower price).
Ultimately, the broker and the buyer should have the same aligned interest – securing a domain name at a favorable price for the buyer. I do not think the broker should be compensated by both parties since that could be perceived (and maybe more than perceived) as unethical or potentially illegal if both parties weren’t aware of this.
In the somewhat interconnected world of domain investing where the top brokers know most of the major investors and do deals on both sides of the table, it is important for brokers to have clear arrangements with their clients that align with the interests of their clients. The best domain brokers tend to get referrals from clients, and the best way is to operate in the best interest of the client with clear objectives and compensation.