Escrow is an important thing to pay attention to when buying domain names, especially those of high value. This article will explain how domain name escrow works and the necessity of using a domain escrow service when making highly-priced acquisitions.
What Is Escrow?
Escrow is an arrangement in which a neutral third party temporarily holds money meant for a purchase until specific conditions are met. The money will only be transferred to the intended recipient when the conditions are met. If the conditions are not fulfilled, the money will go back to the buyer.
What Can Escrow Be Used For & Why
Escrow is common in transactions where a significant amount of money is involved, e.g., real estate. It is necessary to protect the buyer from losing money in case the seller does not fulfill the terms of the deal.
Domain name purchases can be pricey, which makes escrow services necessary just like with real estate. After all, domain names are online real estate. Escrow protects against:
- Sellers refusing to deliver a domain despite agreeing to do so.
- Buyers refusing to pay for a domain despite an agreement to buy it.
- Payment being made, and the domain not being transferred to the buyer.
In short, escrow ensures that both parties in a deal stick to their agreed terms. It is a mediator of the transaction and refuses to complete it until both parties act in good faith.
How Does Escrow Work?
1. Agreement on price and deal
The buyer and the seller negotiate and agree on how much is to be paid for a domain name or group of domain names. They also negotiate important factors like the date of payment, method of payment, and what currency to use.
2. Buyer places agreement with an escrow company
With the deal terms drawn out, the buyer finds an escrow service and deposits the payment. Once the payment goes through, the escrow service will notify the seller and tell them to transfer ownership of the domain name.
3. Domain Name Is Transferred
The seller will transfer the domain name to the buyer. The procedure varies depending on the domain registrar, but both parties will work together to ensure a smooth transfer.
4. Domain Transfer Is Confirmed
After the domain is transferred, the buyer will notify the escrow service that the seller has fulfilled their part of the deal.
5. Payment Given To Seller
With the domain transfer confirmed, the escrow company sends the money deposited by the buyer to the seller.
What fees are associated with using an escrow service?
The escrow usually charges a commission on the value of the deal. Some may also charge a flat fee in addition to a commission. The exact commission may vary depending on the deal volume.
Benefits of Using Escrow For Buyers and Sellers
The benefits of using escrow for domain names include:
- Security: The escrow holds the money until all deal terms are fulfilled, so there are little chances of the buyer losing their money without getting the intended domain name. The buyer also feels more secure dealing with a trusted escrow service than with a stranger over the web.
- Assurance: The buyer is assured that they will get the domain they want, and the seller is assured of payment once the domain transfer is confirmed.
- Customer support: Escrow services usually offer customer support and can guide the buyer throughout the process of acquiring a domain name.
Alternatives To Using Escrow
A licensed attorney can draft a sales contract that is legally binding for both the buyer and seller. If any party breaks the contract, they can be sued for damages in court. The attorney can also act as an escrow service and only transfer money from the buyer to the seller if the terms of the contract are fulfilled.
There are many marketplaces where you can acquire domain names. Here, the marketplace acts as a custodian of the domain and only transfers it to the buyer after payment is confirmed, which is then given to the seller.
Best Domain Name Escrow Services
Escrow.com is the world’s largest online escrow service, and it has specific features for domain sales. The buyer can initiate the escrow request and provide the seller’s contact information for Escrow.com to get in touch. The buyer transfers the agreed sum to Escrow.com, and it is only when they confirm the domain has been transferred that Escrow.com will disburse the money to the seller.
Escrow.com charges 3.25% for deals between $0 and $5,000; 0.89% for deals between $5,001 and $25,000; and $162.5 + 0.25% for deals over $25,001.
Sedo Domain Transfer Service
Sedo is a popular domain name and website marketplace. Its domain transfer service puts it as a middleman between the buyer and the seller. Sedo receives the payment from the buyer and the domain name from the seller. When both ends are confirmed, then Sedo transfers the domain to the buyer and the money to the seller.
This service incurs a 3% fee on the domain purchase price, with a minimum of $60.
Afternic is another popular domain name marketplace focused on high-value domains. It offers an escrow service to protect both the buyer and the seller. Afternic holds the agreed amount and only disburses it to the seller when the buyer has confirmed receipt of the domain. If either party breaks the deal terms, the sale will be canceled and the money given back to the buyer minus the escrow fee.
The drawback here is that Afternic doesn’t charge escrow fees separately. It takes a 20% fee which includes both sales and escrow commissions on all domains listed on its platform.
Using an Escrow Service
It is necessary to use an escrow service if you are paying a significant amount for a domain name and it helps protect you and the seller. If you need guidance in the domain buying process, including escrow, contact us for help. We have negotiated over $100 million in domain name sales and have over a decade of experience in domain name buying and transfers.