I would like to explain a few things related to expired domains in a definition format, which should make it easy to understand.

What are expired domains?
Expired domains are domain names that have been registered and the owner has failed to pay to keep the domain. (Many people think that they purchase a domain, but it is more like an exclusive lease. As long as you continue to pay renewal fees, you are the only person that can use this domain.)

What is a typein domain name?
A typein domain is a domain that people often would type into their internet browser. There are two types of typein domains. The first is generic domains, which are generally, generic common words or phrases, people, places, or names (first or last). The second type of typein domain are typo domains. Typo domains are domains that were accidentally typed (mispelled) into the web browser, when a surfer is looking for a website.

What is the wayback archive?
Use the Wayback archive to see how a domain looked in the past, weather it was a developed website, what it was used for, what products were sold there, or what information was provided.

What is linkpop?
Linkpop is the total sum of links on other active websites that are pointing to any web page or domain.

What is overture with the extension?
The overture keyword selector tool shows how many times anyone made a search in one of a few major search engines for the specific domain during the previous month.

What is overture without the extension?
The overture keyword selector tool shows how many times anyone made a search in one of a few major search engines for the specific terms that make up the domain during the previous month.

What is google pr or google pagerank?
Google PageRank performs an objective measurement of the importance of web pages by solving an equation of more than 500 million variables and 2 billion terms. Instead of counting direct links, PageRank interprets a link from Page A to Page B as a vote for Page B by Page A. PageRank then assesses a page's importance by the number of votes it receives. PageRank also considers the importance of each page that casts a vote, as votes from some pages are considered to have greater value, thus giving the linked page greater value. Important pages receive a higher PageRank and appear at the top of the search results. Google's technology uses the collective intelligence of the web to determine a page's importance. There is no human involvement or manipulation of results, which is why users have come to trust Google as a source of objective information untainted by paid placement.

What are alexa ratings?
Alexa.com ranks websites by the amount of visitors (using the alexa toolbar) to a website. The websites are ranked from 1 to about 6 million. Why are expired domains valuable?

There are thousands of domains expiring each and every day. Many of these domains were purchased which the plan for future development, but were never developed. Even if a domain was never developed, it could still hold some value, based on weather it recieves typein traffic. Some domains were developed, but never became popular, and yet a small percent of expiring domains, were once developed websites recieving hundreds or even thousands of daily visitors. These domains could be expiring due to many different reasons. Some may not be renewed intentionally because the previous owner did not comprehend the value of the traffic, some may have been owned by an incarcerated or deceased individual, some may have been owned by a defunct company, some may have had invalid or outdated contact information. But just because a domain is expiring does not mean that it is worthless. You should fully research these domains either manually by checking the wayback archive to see what the domain was previously used for. Resources that can be beneficial when researching domains are alexa which cannot be relied on by itself, but chances are good that if a domain has overture with the extension, a little linkpop, and an alexa ranking under 500,000, that it should have decent traffic (but we must also remember that not all web surfers have the alexa toolbar installed). Judging the value of expired domains that you plan on registering or bidding for at domain auctions, can be a guessing game. But if you understand the basics of how to the internet works, how sites pass on traffic, and which tools can be used to estimate traffic, and how much advertisers are willing to pay for related targetted traffic, then you can get a pretty good idea of what kind of value to put on a domain prior to owning it.

These tools can all be used to improve your estimate of expected traffic. After using all of the above to research the domain, you should check the accuracy of the linkpop, and also check the estimated traffic of websites that are linking to the expired domain. Once you have made your guess at estimated number of visitors per day the domain should recieve, and figured out what products the visitors are targetted towards, you should then use the Overture Bid Tool to see what advertisers are paying for targetted traffic. Although some traffic converts a lot better than others, until you own the domain, you will never know for sure how many visitors will actually convert to clicks. I normally lowball my estimated click through percentage to 5%.

Example: domain1.com

So let's say you figure domain1.com recieves 100 unique visitors per day, using an estimated 5% clickthrough rate, gives you 5 clicks per day. The top 3 paying advertisers are paying overture an average of $1.00 per click Most PPC's recieve 50% of the advertising bid, and split 50% of that with you. Paying you $0.25 per click for this keyword. Here is the most important part of judging the value of a domain. Is the expired domain recieving traffic from mostly incoming links from other websites or mostly from people typing the domain into their browser in search of products. If the domain in question is recieving traffic from mostly links, search engines, and bookmarks, then the traffic could conceivably dry up in a shorter period of time than typein domains. Linkpop domains (previously developed sites) are generally valued at between 18-24 months revenue, and typein domains are generally values at between 36-60 months revenue. The example domain(domain1.com) would then have the following estimated value according to my formula. If it is a linkpop domain: $135-180 If it is a typein domain: $270-450

The above example is based on using a major ppc provider such as domain sponsor or fabulous, but if you have a direct pertnership with google or overture, the domain could yeild a better return and be worth more to you.

All of the above referenced tools and resources are fully explained and discussed

at my Deleted Domains Blog