Sealed Bids: Process & Method Explained
A sealed bid is a type of auction that is used when there is significant interest in a property from competing buyers. It is most often found when the housing market is strong, and is a way for sellers to receive multiple offers before settling on a final price and choosing a winner.
As 'hot' markets can often be competitive, sealed bids are a solution for multiple potential buyers to make an offer quickly and securely; however, they present some issues for buyers to consider before submitting an offer.
To help you make an informed decision, Compare My Move has worked alongside property experts to create an article explaining the sealed bidding process and what it means for both the buyer and seller. From how it works to the pros and cons, we have everything you need in one useful guide.
What are Sealed Bids?
Sealed bidding is a type of auction for buying a property.
The property will have an asking price, which may be either a specific sum or an “offer in the region of” figure. But if there is increased interest in the property in question, then the estate agent may invite the buyers to take part in a sealed bid auction. The potential buyers can then each submit a sealed bid before the pre-agreed deadline set by the estate agent and seller.
Much like a ‘blind auction’, the bidders won’t know what the others have bid, and typically, the seller will then choose the best bid. This will not always be the highest, however, as other factors can make a buyer seem more desirable.
If a buyer wishes to move quickly, has no or a small property chain or is a cash buyer, then they may become more appealing to the seller. It’s not just the amount that can make you the winning bidder, however, it is still a major factor to consider.
Keep in mind that a sealed bid is not legally binding in England and Wales. Either party is allowed to walk away from the transaction until the contracts are signed and exchanged. In Scotland, gazumping is rarely seen so there’s less of a chance that the seller will accept a new bid during the transaction. However, the sale is again not yet legally binding until the conclusion of missives so the sale could still fall through from other factors.
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How Does the Sealed Bidding Process Work When Buying a House?
Like the traditional route of buying a house, the buyers will still be able to visit the property before making an offer. Once the agent has announced a sealed bid, the buyers will be given a time frame and deadline. Keep in mind that this process forces buyers to make quick decisions and so you need to think carefully before offering a bid.
During this time frame, the buyers will have to submit their offer in writing, producing the amount they wish to bid and any other relevant information needed. If possible, ensure you hand-deliver the letter so the estate agent receives it on time. If sending by email, then ask for a confirmation that it’s been received.
When considering your offer, the National Association of Estate Agents (NAEA) says that it’s important to avoid bidding round numbers as it helps to prevent making an identical bid as another potential buyer. If possible, add a little extra to make your bid stand out. Instead of bidding £200,000 for example, try something like £200,195.
Once the deadline has passed and everyone has presented their bid, the estate agent will get in touch with the chosen winner. They may also contact you to persuade you to increase your bid if someone has offered a higher price. This is up to you to accept or deny. At this point, the bid is not legally binding and so the buyers are under no obligation to continue with the sale.
Once the winning buyer has been contacted and the price agreed, the conveyancing process can begin. The sale will then become legally binding once the contracts have been signed and exchanged between parties.
Sealed Bids in Scotland
‘Blind bidding’ is a much more common practice in Scotland and so the process works slightly differently. When a property is advertised as ‘offers around' or 'offers over', the prospective buyer will be given a deadline to present a sealed bid. Your solicitor should help you send the bid as well as all the relevant details. Once the deadline has passed, the seller will choose a ‘winning’ bid.
Again, this does not mean that the contract is legally binding. Only when you reach the conclusion of missives (which is the equivalent to the exchange of contracts in England and Wales) is the transaction considered legally binding. It is less likely that you’ll be gazumped in Scotland, however, reducing the chance of the seller changing their mind and accepting a new offer before finalising the transaction.
What Should a Sealed Bid Letter Include?
Sending your bid is simply not enough. You will likely also be required to send a sealed bid letter to help the seller choose the most appropriate and appealing buyer.
In your bid letter, you should include:
- A clear timeline you wish to stick by to show you’re serious about the purchase but can be flexible if necessary.
- Your solicitor’s details to prove you’re organised and ready to begin the process
- Proof of funds such as a copy of your bank statement to show you have the deposit ready. If you’re a cash buyer, state so.
- Your Mortgage Agreement in Principle.
- State if you’re a first-time buyer or are chain-free.
- Give a quick statement describing what drew you to the home and what you personally love about it. This will show how serious you are about purchasing the property.
- If you’re selling your previous home and are not chain-free, explain your current situation and provide a timeline for how long it’ll take you to complete the sale.
How to Decide How Much to Offer
As with any purchase, your offer greatly depends on what you can realistically afford. However, offers in property purchases also depend on how much you think the property is worth. It’s not uncommon for sellers to set an asking price that is their ideal price rather than a realistic valuation, opening the opportunity for negotiations.
The amount you offer in your sealed bid will be dependent on the current state of the property market, the asking price set by the seller and how much you personally like the property. The biggest piece of advice anyone can provide is to do your research.
When deciding on how much to offer, be careful not to overbid. It can often be tempting to do so to present yourself as a more appealing bidder. But overbidding can be disastrous, especially if your lender values the property lower than your offer, leaving you with a gap in the funds required.
It’s important to note that although the estate agent can guide you on a price the seller ideally wants, their personal goal is to also achieve a high price. So only use their advice as a guide rather than a determining factor. Browse through other property listings within the area and take a look at how much they are currently going for versus how much they have actually sold for. Take into account any repair work that may be required.
A good tip is to provide an offer that is an odd number. This makes you more likely to have the highest bid, even if it’s only by a small margin.
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Are Sealed Bids Legally Binding?
No, a sealed bid is not legally binding. A property sale becomes legally binding when the contract has been signed and exchanged between all parties involved.
As with the traditional process of purchasing a house, the seller is the one in control as they can accept or refuse any sealed bids offered to them. It’s possible they may even reject the highest bid or all the offers presented. It’s also not uncommon for sellers to try negotiating a better price with other previous parties even when one sealed bid has already been accepted. This is called gazumping.
Sellers should be aware that the sealed bid process does reduce the likelihood of attracting unmotivated buyers as they will have to present their best offer and disclose proof of funds.
However, as it’s not legally binding, the seller isn’t the only party able to walk away from the transaction. The buyer is also able to pull out of the sale at any point even if their bid has been accepted. This means that sealed bids do not offer protection for either the buyer or seller in England and Wales.
In Scotland, the process is slightly different. You will first have to wait for the conclusion of missives, which is similar to the exchanging of contracts. At this stage, once all documents have been signed and agreed upon, the sale will be legally binding. Gazumping is less common in Scotland, meaning it’s likely a seller won’t accept more than one offer, but a sealed bid is still not a confirmation that the sale is finalised.
What are the Advantages and Disadvantages?
There are a variety of both advantages and disadvantages to using sealed bidding as a way to secure a home. To help you decide if it’s the right choice for you, we’ve included a list of both below to ensure you can make an informed decision.
Sellers can sometimes receive higher offers than anticipated.
The buyer may end up paying more than the property is worth.
Buyers can secure a quick purchase at a price they’re happy to pay.
Either party can walk away from the transaction and possibly leave the other out of pocket.
Buyers can still view the property before submitting a bid, ensuring they offer a worthy price.
It increases the chance of being gazumped.
Unless living in Scotland, sealed bids are not legally binding and so you can pull out of the purchase still if either party is unsure.
Prices may end up being inflated if you’re offered the chance to raise your bid. This then affects the resale value.
Due to the quick process, some buyers may panic and bid more than they can afford.
How Do You Make Yourself a Strong Bidder?
The highest bidder is not always the strongest. There are other factors that can influence a seller and make you seem like a more appealing buyer.
When submitting your bid, don’t send only your offer, add other relevant information that will support you as a worthy buyer. Think of your sealed bid letter as a ‘buyer CV’, you want to highlight your potential and the factors that make you a worthy candidate.
Present a clear timeline you’re personally happy with to prove you’re not wasting their time but also show you can adapt with any changes or delays. Be honest, but if you’re able to be flexible with the transaction’s timeline then it would be worth noting.
If possible, it would be ideal to present proof of funds, especially proof that you have the deposit ready. This could include bank statements or perhaps proof of your mortgage agreement in principle. If you’re a cash buyer, this could make you more appealing also.
Finally, be confident about your offer. Research the property and any other homes for sale in the area to see what they are all currently worth. You can then use this information to help support your bid. Don’t forget to use the findings from the property survey to also support your case.
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Our Top Tips for Sealed Bidding
Here are our top tips to help increase your chances of submitting a strong bid:
- Make a connection with the seller - when possible, communicating with the seller can make you seem more human and you can also get an understanding of what they want from a prospective buyer.
- Act quickly - by submitting a bid early, you will seem keen, reliable and like a buyer who will keep the process moving quickly.
- Find out how many bidders there are - this will give you an idea of how much competition to expect.
- Don’t panic or overbid - despite the fast pace, don’t panic. You don’t want to submit a bid you cannot afford to take some time to think through your offer.
- Get your finances in order - this shows your intent and that you’re a reliable bidder. Make sure you have a mortgage in principle if required. This will also help you know what you can and can not afford so you don’t overbid.
- Pick an uneven number - when making a bid, choose an uneven number for your price such as £301,359. This reduces the chance of making an identical offer with another bidder and adds extra to the price without being too expensive.
- Deliver your bid in person - this ensures you know it’s been given to the estate agent without delay.
- Set a deadline and timescale - you have to show the seller that you’re reliable and also want a quick transaction. Set a deadline for a response once the offer has been made and put this in your bid letter. This shows you’re committed and serious about the transaction, but that you also won’t tolerate your time being wasted.
- Hire a property surveyor - if you compare surveying quotes before making a sealed bid and thus have a property surveyor in mind, it shows you’re committed and serious about buying.
- Offer to negotiate - if you don’t win the bid but still believe you can afford a higher offer, then ask the seller and estate agent if you can negotiate the price.
What Happens if Your Bid is Rejected?
If your bid is rejected then there’s not much else you can do. If the seller’s estate agent states that they are still interested in you as a buyer but the offer is too low, then you’ll have the opportunity to increase your bid.
However, if they do not contact you or state that your bid has been rejected, then it’s time to continue house-hunting. It can be disheartening losing out on a property you love, but sales do sometimes fall through. You can either keep in contact with the estate agent so that they can update you on any similar properties, or you can continue looking elsewhere.
Are Sealed Bids Right for You?
Sealed bidding is becoming increasingly popular in recent years according to estate agency, Knight Frank. The agency has recently seen an increase of 50% in sealed bids, particularly in London.
“Once extremely rare in the rental market, every office across our PCL network is now reporting a pronounced increase in sealed bidding,” says David Mumby, regional partner at Knight Frank. “Without doubt, the increase in demand from the tech sector and limited options for tenants are driving demand at a rate we haven’t seen for years.”
However, just because demand has increased, does not mean you should continue with this method without researching first. Sealed bidding can be a fast-paced, sometimes stressful process and so the decision shouldn’t be taken lightly.
Sealed bidding can be a great opportunity for sellers and for buyers who know they want the property and know how much they want to spend. For the appealing buyers, especially cash buyers and those with a mortgage in principle, it can be a very positive experience and result in them winning the auction.
However, if you have a strict budget or are unsure of how much you want to spend, you may end up paying more than you originally wanted. Only bid and pay what you can afford. If you feel uneasy writing the bid, do not send it. Be sure and be confident in your offer and the process should be fairly positive.
Next Steps of Buying a House
This article is part of our home buying guide. Compare My Move is a hub of property advice and articles, using top tips from our experts in the field to guide you through the buying process. In the next article, we explain what a property chain is and how to avoid delay. To find out more read what is a property chain.