Before you begin your home-buying journey you must consider the related topics of costs of buying a house and validating other offers. Be prepared by keeping the key questions during house viewings, in your mind.
What is a sealed bid?
A sealed bid is a confidential offer, in a sealed envelope, made by an interested buyer for a property that has been listed for sale. The process resembles a blind auction.
Asking for sealed bids is a method of obtaining offers in situations where there is significant interest and likely fierce competition for a particular property. The highest bidder usually secures the property.
How do sealed bids work?
When there is a high demand for your property, the estate agents may advise a seller to go down the sealed bid route.
They inform potential buyers of the auction and set a particular date and time by which all bids must be submitted.
When the deadline passes, the vendor and their agent review the bids and decide on the successful bid, usually considering not just the highest price but also other things such as the buyer's ability to proceed to completion quickly.
Are sealed bids legally binding?
In England and Wales, a successful bid is not legally binding until contracts have been exchanged.
This distinction allows room for possible renegotiations or the chance to submit a higher offer if the seller entertains second-round offers.
On the other hand, in Scotland, once the seller accepts an offer, the agreement becomes legally binding, making it crucial for buyers to have their finances and solicitors in place before bidding.
Submitting a successful sealed bid
To submit a sealed bid, you provide your offer in a sealed envelope, accompanied by a letter stating your offer price.
How to write a compelling bid letter:
The letter is important - it should give more than just your offer, it should also give other relevant information. It is your opportunity to stand out from other bidders and make a connection with the seller.
Who you are and why you want this property: introduce yourself and state reasons for your interest in the property.
Proof of finances: show a clear picture of your financial situation and provide proof of funds, such as a mortgage agreement in principle or a bank statement.
Unique selling points: highlight any unique selling points, for example, being a cash buyer or being chain-free. If your current property sale status means you can move fast on the purchase, mention it as well.
Appeal to emotions: when it comes to homes, there might be factors more important than the highest offer for the seller. Establishing an emotional bond with them can help tilt the scales in your favour. Sellers like to think that they are selling to someone who can appreciate and connect to the property, as they have done, perhaps for many long years. Mention experiences you look forward to having, similar to those the seller has already had. You don't need to be disingenuous.
Keep it concise: it is advisable to keep your letter to the point and professional.
Solicitor's details: you should also include your solicitor's details to demonstrate that you can exchange contracts quickly, and any information that supports your offer, such as a surveyor's report.
Keep dates in mind
The estate agent will communicate specific dates and deadlines, such as the date by which all bids must be submitted, and when the successful bidder will be notified.
Adhere to these deadlines, as late bids may not be considered.
How to make a winning bid: tips for success
Winning does not revolve around the maximum offer factor only. Keep the following things in mind if you do not want the sale of the property to fall through.
Make informed decisions: winning is not just about who buys the property, but whether the buyer pays a fair price. You need to know the market value and the guide price. Market value is the amount a property is likely to sell for, while the guide price is the amount the vendor hopes to receive. To make a competitive bid, you need to strike a balance between these two figures.
Research similar properties and their prices. Look at recently sold properties in the area with comparable features to the one you're interested in. This can give you a better idea of a reasonable offer.
Best and final offer: property agents managing the bidding process usually ask for the 'best and final offer' from each potential buyer, i.e. the highest amount you're willing to spend for the property. Usually, you won't be able to make a second offer for more money.
Consider how much you should bid above the asking price. While there's no set formula, bidding slightly above the asking price, could give you an edge over your competitors.
Don't be tempted to bid more than you can afford: know your maximum amount and financial limits. Determine the most you're willing to pay for the property and stick to it. Avoid succumbing to the temptation to bid more than you can pay.
Being a cash buyer: being able to pay in cash and/or not being in a chain can make your offer more attractive to the seller, as it may allow them to proceed faster with the sale or with less risk of it falling through.
Other factors: factors other than the highest offer, can often influence the seller's decision, such as the buyer's ability to complete the transaction quickly or the absence of any special conditions in the offer.
Build a connection with the estate agent: an estate agent or a buying agent can provide valuable information about the property and the seller's preferences.
Avoid round numbers: the National Association of Estate Agents recommends avoiding bidding with round numbers to reduce the likelihood of matching someone else's bid. For instance, offering £325,050 instead of £325,000 can give you an edge, especially if the buyer is simply selecting the highest amount, allowing you to outbid others who offer round numbers.
What happens when all bids are received?
After the deadline for submitting bids passes, the seller will review them and choose a winner.
If your bid is deemed the most attractive, the estate agent will notify you of your success. At this point, you'll need to move quickly to secure the property by exchanging contracts and paying the deposit.
Engaging a conveyancer can help streamline the process and reduce the risk of any legal issues arising.
If your sealed bid is rejected
If your bid is unsuccessful, you may feel disappointed, but it's important to learn from the experience and move forward.
The knowledge you've gained from participating in the sealed bid process can be valuable in your future property search.
Stay in touch with the agent. Even if your bid has been rejected, a property's sale might fall through. The agent will then be able to inform you that you are back in the running.
What if two bids are the same?
In the rare event that two bids are identical, the seller may choose a winner based on other factors, such as the buyer's ability to proceed quickly or their financial stability.
Alternatively, the seller may invite the tied bidders to submit a new, higher bid, effectively starting a second round of bidding.
This is why it's important to make your initial bid as strong as possible, giving not just a figure but also your unique selling points as a buyer.
Pros and cons of sealed bidding
The advantages
Since all bids are submitted confidentially, you can feel confident in offering an amount that reflects what you're truly willing to pay without the fear of being influenced by other bidders.
A level playing field may reduce the likelihood of spiralling into a frenzied bidding war, which can save time and emotional energy.
Submitting sealed bids can speed up the purchase, as the seller is eager to make a decision, allowing you to proceed quickly to the next stages of home buying.
The disadvantages
The most notable drawback for buyers is the element of uncertainty. As you're unaware of other participants' bids, you risk overpaying for the property or submitting a bid that falls short of the highest price.
The process can be emotionally draining, as you must determine your maximum limit and be prepared for potential disappointment.
Beware of gazumping: it's when your accepted offer on a house gets dropped if the seller receives a higher bid. It is especially common in sealed bid scenarios where agents may push for higher offers even after you've seemingly won.
Sealed bidding can favour cash buyers and those with a higher financial standing, making it more challenging for first-time buyers or those with less flexible budgets to succeed.
Sealed bids in different regions of the UK
Scotland
In Scotland, the property buying process, known as the 'offers over' system, differs from the rest of the UK. It involves setting an indicative price slightly below the market value, and inviting potential buyers to submit their best and final offers by a particular date.
While it may resemble a sealed bid auction, Scottish law requires a Scottish solicitor to submit the offer on the buyer's behalf.
For more information on the Scottish property buying process, visit the Scottish Government's website.
England and Wales
The sealed bid procedure in England and Wales is less formal than in Scotland. It's typically used where there is significant interest in a property.
It's advisable to consult with a professional conveyancing solicitor to ensure you understand the particular rules and regulations in your region.