A sealed bid is normally arranged by an estate agent if the number of buyers that wish to offer on a property exceeds what can be sensibly managed with normal negotiations.
The process involves inviting the interested parties to make their best offer in writing by an agreed date at which point the vendor chooses their preferred buyer.
It is common for a proportion of the buyers who are invited to offer to refuse to participate, either as a point of principle or because they take the view that the process is driving the price beyond what the house is worth. Both opinions lack logic in our view.
The sealed bid process can be daunting but it is evidence of nothing in itself, except that the property was probably under-priced to begin with. The process it is merely a device for establishing the most that the market is prepared to pay for the property – and only after it has run its course has the property’s worth been established.
If you secure a property via a sealed bid with what you understand to be the highest numerical offer then it is true to say that you will have paid some sort of premium to win. That amount (the amount between you and the next highest bidder) is extent of your risk and in our experience, in most cases it’s a small percentage.
You should take reassurance from the presence of the other under-bidders. From your perspective they are the market, and the amounts they offered are what you should be able to achieve if you decide to sell the property down the line, subject to market conditions remaining the same of course.
Advice for buyers participating in sealed bids
Remember it is not always the highest bid that wins, infact it is quite common for cash buyers or those who can proceed quickly to trump bidders who have a chain of buyers beneath them or small mortgage deposits. Also keep the following in mind:
- Ignore the asking price as a measure of the property’s worth.
- If you have time, appoint a surveyor or a competent estate agent to advise you on the property before you bid.
- Make your bid in writing and add as much detail as you can about the strengths of your buying position.