People regularly compare domain names to real estate, and I think it is generally a good comparison. When a domain name owner is negotiating the sale of a domain name to someone unfamiliar with this “virtual real estate,” it can be helpful to use physical real estate as a comparable asset class.
There are several important differences (like tax treatment and asset class among others) between domain names and real estate, but I want to share one major difference people probably don’t think about – the branding aspect.
I am evaluating a couple of major lease and lease to own offers on domain names my company owns. One issue with a deal that involves a future payment where a buyer or lessor is allowed to use the domain name in the interim is the goodwill of the domain name can potentially be harmed. If the company goes out of business, is a scammer or spammer, or if something bad happens to the company using the domain name, the domain name brand could be irreparably harmed.
Allow me to illustrate with an example:
Let’s say you own a property in a major city and you lease it to a restaurant. If it turns out that people got very sick eating at the restaurant and it closed down, the real estate value is not really harmed. You could lease the space to a retail store or even another restaurant, and people most likely will not associate the closed down restaurant with the new restaurant or retail shop. The address is the same but the restaurant and restaurant name are totally different. A domain name, on the other hand, is the address and the brand. If a domain name is used in a manner that harms the brand, it could be very difficult for someone else to use the name in a subsequent manner and shed itself of the negative goodwill created by the former user.
When considering a lease, lease to own, lease with a buy option, or some other type of deal where the buyer isn’t going to pay for the domain name upfront, the domain owner needs to understand that the domain name brand could be harmed for future use. I am sure there are ways to contractually protect the business, but even if there is recourse in the contract, the domain name could be tarnished for a future user.
Domain names compare well to real estate, but this is one major difference that should be considered.