In a heated market, there can be a competitive level of interest in a property.
If this is the case, you may be asked to take part in a ‘sealed bid’ scenario.
But, what does this mean? How should you handle this situation should you find yourself in it? Here’s a closer look at this somewhat unknown area of the property market.
What are sealed bids?
So, first things first, how do you define ‘sealed bid?’
If multiple buyers express interest in a particular property, an estate agent might ask them to take part in a sealed bid auction.
Hopeful buyers will submit their offer in a sealed envelope by a particular date. This date for sealed bids is usually set by the estate agent and seller.
No bidder knows how much the other participants have bid. All bids are placed at the same time and the highest bidder is declared the winner.
It’s essentially a ‘blind auction’. For this reason – always read the rules!
Understanding sealed bidding procedures
The sealed bid process is a negotiating position many try to avoid, as you can end up spending more than you wanted to.
You are blindly competing against all other buyers, rather than simply expressing an interest in the property.
In effect, you are in a ‘last chance’ scenario with minimal opportunity for further negotiation.
This isn’t to say this is something you shouldn’t do, just remember to approach a sealed bid negotiation with your eyes wide open.
Do all your research on the property beforehand, including how many potential interested buyers there are.
On a positive note, when several buyers are after the same property, it demonstrates that the asking price is a fair one. It’s also important to remember that sealed bids aren’t a legally binding decision.
How to decide what to offer
There are no hard and fast rules. Determining what to offer will be dependent on the market, how much you like the property and its asking price.
The best advice, whenever you submit an offer, is to ensure that you have done your research.
- Be able to definitively say how much the property is worth, and how much you are prepared to pay for it
- Try not to panic and overpay. Instead of looking at the other potential buyers (speak to the estate agent to find out how many there are) and take a measured approach
- Take into consideration how it would feel to have your offer rejected. Is there another property with similar appeal? Would you regret not offering a tiny bit more if you could have done? You don’t want to regret letting the property go because you were afraid to bid a little more
- Never bid more than you can borrow. The mortgage company won’t be sympathetic and give you more money because you got carried away bidding. You won’t be looked on favourably by the seller or the estate agent either
- TIP: Use an odd number. That way you are likely to have the highest bid, even if it’s only by a small margin
How to submit a sealed bid
Remember that it’s likely that you will be given a time frame in which to operate, forcing you to make decisions faster.
You will be asked to submit your offer in writing. Try and hand-deliver your letter to the estate agent to ensure it is received.
What to include in your sealed bid offer
Your letter isn’t simply an offer, but a way to make your bid very attractive to the seller. If possible, include:
- Are you a cash buyer? If so, state this in your letter
- If you’re a first-time buyer, use this to your advantage. Those who are chain-free are often more appealing to sellers
- Show yourself to be a reliable buyer, by including proof of funds and having a mortgage agreement in principle in place. A seller is more likely to accept an offer from a buyer who’s serious about the sale
- Give reasons why you love the house and what has drawn you to it. Detail all the necessary processes you have taken, explaining that your offer isn’t subject to survey (a survey will have been carried out before submitting)
- If you’re selling your own home, explain how you’re managing your property chain and an idea for a timescale for how long it would take you to complete – showing commitment to the sale
- Using a buying agent also proves you’re serious about buying the home, so let them know if this is the case
Waiting to hear the outcome
You should quickly find out if your bid is successful or not. If you do miss out, always ask the agent if there is any chance to increase your bid. It’s unlikely – but if you don’t ask you don’t get!
If you lose, be sure to let the estate agent know that you are still interested if the winning party is not able to complete the purchase.
You would be amazed at how many people get carried away by the competitive nature of property sealed bidding – only to change their mind.
What if two bids are the same?
If two identical bids are submitted, the seller has different options:
- Asking the buyers to enter a contract race
- Beginning a second round of sealed bids
- Accepting the offer of the potential buyer who commissions a survey first
What if your bid is rejected?
If you do lose the bid, don’t be too disheartened.
There are plenty of other properties out there, so use the experience and put it into practice in your future property searches.
What is a best and final offer?
Best and final offer letters are similar to sealed bids – except they don’t have to be submitted in an envelope.
Some estate agents will ask buyers to submit their best and final offers by a specific date, so they can assess the bids and the seller can choose which one they want to accept.
Follow the same process as with sealed bids, explaining why you’re the buyer they should choose.
Be confident in your offer
Arm yourself with all the facts about a prospective property and the surrounding area to help you decide what to offer and get the best deal.
Reports are proving invaluable for home buyers, as they can be used to see local valuations to make sure you don’t pay too much for a property. A report should also include historic details on the property such as the last time it was sold, the last sale price and how the current price relates to other properties in the area, and how that price compares nationally.
You also get the details on existing planning applications (granted and pending) within a half mile radius of the property that you may not have been aware of. Depending on the plan you may want to use this to formulate your offer. Get your property report here.