What is a sealed bid?
Making a sealed bid means to submit a confidential offer, sealed in an envelope, to purchase a property. 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.
In the UK property market, sealed bids are becoming increasingly common due to a growing demand for properties and a lack of supply. This competitive environment drives property prices upwards.
The procedure can be daunting for first-time buyers, but understanding it can improve your chances of success.
How do sealed bids work?
Estate agents typically advise a seller to go down the sealed bid route when there are several interested parties for a specific property.
They inform potential buyers of the sealed bid 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.
Submitting a sealed bid
To submit a sealed bid, you provide your offer in a sealed envelope, accompanied by a bid letter outlining your offer price. 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.
Writing a compelling bid letter involves:
- introducing yourself and stating your interest in the property
- explaining your financial situation and providing proof of funds, such as a mortgage agreement in principle or a bank statement
- highlighting any unique selling points that you have as a buyer, for example, being a cash buyer or being chain-free
- establishing an emotional bond with the vendor.
The last point is often overlooked. In our experience, sellers like to think that they are selling to someone they like, someone like them. In your offer letter, you should not only express your appreciation and connection to the property, but mention experiences that you look forward to having that the seller has already had. You don't need to be disingenuous.
Keep the letter concise, professional, and genuine
You should also include your solicitor's details to demonstrate that you can exchange contracts quickly, and any information that supports your bid offer, such as a surveyor's report. If your current property sale status means you can move fast on the purchase, mention it as well.
Key dates in the sealed bidding process
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
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.
Property agents managing the bid 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 that winning is not just about who buys the property, but whether the buyer pays a fair price.
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 afford.
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.
Consider how much you should bid above the asking price. While there's no set formula, bidding slightly higher than it could give you an edge over your competitors.
Tips and tricks
Being a cash buyer 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.
Stay in close touch with the estate agent and, if applicable, your buying agent. They can provide valuable information about the property and the seller's preferences.
While the highest bid may win, remember that other factors can 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.
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.
Consider searching for other properties or exploring alternative options, such as shared ownership or renting.
The knowledge you've gained from participating in the sealed bid process can be valuable in your future property search.
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
Since all bids are submitted confidentially, you can feel confident in offering an amount that reflects what you're truly willing to pay without 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.
Further, 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.
There can be drawbacks for potential buyers.
The most notable 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.
Additionally, the process can be emotionally draining, as you must determine your maximum limit and be prepared for potential disappointment.
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
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, 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.
Once the seller accepts an offer, the agreement becomes legally binding, making it crucial for buyers to have their finances and solicitor in place before bidding.
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.
Unlike Scotland, the successful bid in England and Wales is not legally binding until contracts are exchanged.
This distinction allows room for possible renegotiations or the chance to submit a higher bid if the seller entertains second round offers.
It's advisable to consult with a professional conveyancing solicitor to ensure you understand the particular rules and regulations in your region.