Sealed Bids: Process & Method Explained
Written by Zenyx Griffiths
27th Mar 2020 (Last updated on 18th May 2020) 9 minute read
A sealed bid is a type of auction that is used when there is significant interest in a property. It is a fairly common way for sellers to receive multiple offers before settling on a final price and choosing a winner.
As heated markets can often be competitive, sealed bids are a solution for multiple potential buyers to make an offer quickly and securely. Despite the sealed bid process encouraging a quick sale, there are 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. 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. 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, however, sealed bidding works slightly differently and acceptance of a bid is considered a legally binding contract.
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How Does the Sealed Bidding Process Work?
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 administered 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.
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 if you live outside of Scotland and so the buyers are under no obligation to continue with the sale.
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.
Advantages of Sealed Bidding:
- Sellers can sometimes receive higher offers than anticipated
- Buyers can secure a quick purchase at a price they’re happy to pay
- Buyers can still view the property before submitting a bid, ensuring they offer a price that’s worth it
- 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
Disadvantages of Sealed Bidding:
- If a buyer does not carefully think before bidding, they may end up paying more than the property is worth
- Despite adding flexibility, as a sealed bid is not legally binding, it means either party can walk away from the transaction and possibly leave the other out of pocket
- It increases the chance of being gazumped
- Prices may end up being inflated if you’re offered the chance to raise your bid. This then affects the resale value for the buyer further down the line
- 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.
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
- If you’re a cash buyer, state so.
- Proof of funds like a copy of your bank statement to show you have the deposit ready.
- Your Mortgage Agreement in Principle
- State if you’re a first-time buyer or are chain-free
- 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.
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Our Top Tips for Sealed Bids
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.
- Don’t panic - 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.
Is Sealed Bidding Right for You?
Sealed bidding is becoming increasingly popular in recent years according to the agency chain, Knight Frank. Over the last 3-4 months, they have 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,” David Mumby states, 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.
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