Domain name escrow services

23 September 2011

Consider this chicken and egg scenario.  You have a domain name you want to buy.  You have agreed a purchase price with the seller.  The problem is that the seller is outside Australia.  So you don’t necessarily trust that if you pay the purchase price to the seller, that they will transfer the domain name to you.  Conversely, the seller isn’t confident that you will pay them if they transfer the domain name to you first. In this scenario, if either party defaults on their respective obligations, litigation could be an expensive option given both parties are not in the same jurisdiction.

The answer in recent years to this chicken and egg scenario is the use of a domain name transfer escrow service.  Such a service involves a third party acting as an escrow agent.  In most cases, the process works as follows:

  1. The buyer and seller sign a legally binding agreement for the transfer of the domain name, via the escrow agent.
  2. The seller pays the purchase price to the escrow agent.
  3. The buyer effects the transfer of the domain name to the seller. 
  4. Once the transfer is confirmed, the escrow agent pays the purchase price to the seller.
  5. Depending on the agreement between the buyer and the seller, either the buyer or the seller will pay the escrow agent’s fee (which is usually a commission on the purchase price). 

The most popular escrow services are escrow.com, sedo.com, moniker.com and afternic.com.   All of these sites are located overseas.  There appear to be few providers of this service in Australia, and those that do provide escrow services, do so as an add on to other services they provide.

These services should not be confused with popular market places for domain names and websites.  Examples of these include the Australian owned site flippa.com and the separate domainmarketplace.com.au.  Each of these sites provides their own methodology for effecting payment and transfer. 

There are risks in using domain name transfer escrow services.  Many are overseas and therefore may not be covered by the same or similar financial services laws that would apply to an escrow agent in Australia.  If you are going to use an escrow service for a large domain transfer, then it may be pertinent to go outside the domain name escrow service and use a more traditional service, such as depositing funds with the seller’s or buyer’s law firm, for them to release upon confirmation of the transfer.  Whichever service you use will always be a matter for negotiation between buyer and seller. 

 If you require further information please contact Darren Sommers.