A Guide to Sealed bids: Everything you need to know
Sealed bids are common in a competitive housing market. Here we explain how sealed bids work. For those that have no choice, we have sealed bids tactics to help ensure you don't overpay and increase your chances of a successful bid.
How do sealed bids work?
If a number of buyers express interest in a particular property, an estate agent and the property seller may decide to go to sealed bids.
Sealed bids is where potential buyers are invited to submit their offer in a sealed envelope by a particular date and time. No bidder knows how much the other participants have bid. All bids are placed at the same time and the highest bidder is usually the winner.
A study by Hamptons found that in the first three months of 2021, a third of homes for sale had at least three offers. This is the type of market that typically sees a surge in the use of sealed bids.
This guide sets out advice specifically when you are making an offer with sealed bids.
Sealed bids process explained
The process for sealed bids is different to the usual offer process where buyers can submit offers whenever they want and sellers answer each offer as they come in. With sealed bids, all offers are on the table at the same time.
Sealed bids are also different to an auction process as buyers don’t know what others are bidding and have no opportunity to increase their offer later on.
Instead, with sealed bids the process is as follows:
1. The house will be marketed with an asking price, just like in a standard sale, but the estate agent will ask all potential buyers to make a ‘sealed’ offer by a certain date and time.
2. The buyer needs to decide and write down their bid i.e. the amount they are prepared to pay for the property, and seal it in an envelope. And just like a ‘blind auction’, they won’t know how much others have bid.
3. Once the deadline has passed, the bids will be opened and the estate agent will advise the seller of the offer bids. The seller will then choose which offer to accept. The estate agent will contact the successful bidder to let them know. Usually, the highest offer wins. But sometimes a seller may consider other factors, for example accepting a lower offer from someone who is chain-free or a cash buyer.
4. The seller and the buyer retain the right to withdraw from the purchase. As with any other offer, it is not a legally binding agreement and either party can pull out at any point before contracts are exchanged.
Sealed bids how much above asking price?
With sealed bids you only get one chance to make an offer, so you’ll need to think carefully and make an informed decision. And bear in mind, the property may sell for above the asking price. A study by Hamptons in March 2021 found that 28% of homes sold above the asking price, compared to 19% in March 2020. But you’ll also want to avoid getting carried away with your desire to “win” the bidding process.
In deciding how much to offer with sealed bids, you should:
1. Do your research: Check how much other similar properties are currently on the market for and also see what similar properties have actually sold for too. You’ll want to look at the latest sold prices available at the Land Registry. And when you view the house, consider any repair work it needs and factor that in.
2. Work out your budget: It can often be tempting, especially if you have set your heart on the house, to overbid. There is also a risk that if you overbid you’ll be paying too much for the house, regret it later on, and pull out further down the line. And most importantly, there is a risk your mortgage company’s valuation may not agree the property is worth what you have offered to pay.
3. Remember, a home is only worth what someone is willing to pay: Having said stick to your budget, you do also need to consider how you would feel if your offer is rejected. Are there lots of other properties like this one? Can you wait or are you under pressure to move now? Would you regret not offering a bit more if your finances can stretch to it?
If you want to bid more to try to secure the house, check with your mortgage broker and be clear about the reasons for doing so.
Sealed bids tactics
With sealed bids, the chances are you’ll need to act quickly. But still take time to make sure you play your hand as well as possible.
· If you can find out from the estate agent or seller how many other people are bidding you may be able to make a more educated guess at how much to bid. Make sure you’re 100% happy with the amount you’re bidding.
· When finalising your bid, the National Association of Estate Agents advises against bidding a round number, to help prevent making the same bid as someone else. For example, offer £425,050 rather than £425,000. If the buyer is simply taking the highest amount, it means you would beat someone else if they offer the round number.
· Make connections: If you can communicate with the seller directly, not only will it help you understand what they want from a buyer, if you build a rapport and they like you, it may swing things in your favour if there’s not much to choose between the bids.
· Deliver your sealed bid in person so you’ll know it has definitely got there.
· Act quickly: As soon as you’ve finalised your bid, submit it. You’ll seem keen and organised – the type of buyer most sellers will want.
Sealed bids rules – what if two bids are the same?
If two sealed bids are submitted and they are exactly the same, the seller may begin a second round of sealed bids. Although, if this happens, think very carefully before increasing your offer.
Alternatively, the seller could say, for example, that whoever commissions a survey first will have their offer accepted.
Sealed bids letter template
Your sealed bids letter template should include:
· Your offer price.
· Information that sets you apart from other bidders. Are you a cash-buyer or are you chain free? This may make your offer more appealing, even if your bid isn’t the highest.
· Proof you can afford it. Include proof of funds such as a copy of your bank statement showing you have the deposit. Plus, include a copy of your Mortgage Agreement in Principle.
· Your solicitor’s details. This shows you’re ready to move quickly. And if you have property to sell, include details of the sale’s progress.
· A deadline for a response. By doing this you’re showing that you’re committed to buying the house but it will make it clear you aren’t prepared to have your time wasted.
· Aspects you love about the house. The seller may accept an offer for emotional reasons, especially if everything else is equal, so make your case.
· Your request that if your offer is accepted, the online listing be removed and that there are no further viewings.
Sealed bids in the UK for sellers
If you’re selling a property and if you’ve asked your estate agent to accept sealed bids, there are various factors to consider when comparing offers.
· Look at all the offers in detail. You’ll want to achieve the highest price possible but you will also want to find the best buyer for your circumstances. If you’re made an offer by someone chain-free or a cash buyer, you may be prepared to take a lower offer than from someone in a chain as there may be less chance of the sale falling through.
· How big is their deposit? If a buyer has a large deposit, it’s less likely they’ll have problems getting a mortgage.
· What’s their timeframe? Consider how the different buyers’ timings fit with yours. Can they move quickly enough? Or if you’re still looking for a property to buy, are they happy to wait?
Sealed bid rejected. What next?
If your sealed bid is rejected, you may be asked if you would like to increase your offer.
Whatever you decide, stay in touch with the estate agent. Approximately 1 in 3 (27%) property purchases have fallen through in 2021 according to property agents Quick Move Now. So if this happens with the property you had hoped to buy, you may be back in the running.
Pros and cons of sealed bidding
If you’re a seller and there’s a lot of demand for your property, the advantages of sealed bids are clear. It means interested parties will submit the top figure they’re prepared to pay, without knowing what other buyers are willing to spend. This means there’s a good chance you’ll sell your property for more. However, if someone makes a very high bid then feels like they have overpaid, you may find the sale falls through.
There are some advantages of sealed bids for buyers:
· Sealed bids can speed up the process. So if you want to move fast this could work in your favour.
· There’s no pressure from estate agents or the seller. As long as you overcome the temptation to overpay, you only pay what you think the property is worth.
There is a long list of disadvantages of sealed bids for buyers:
· You are more likely to overpay.
· Sealed bids is usually a quick process and when you feel rushed you may bid more than you can afford.
· You may not have time for a second viewing. This means you may not spot potential pitfalls with the property that would ordinarily mean you would offer a lower amount.
· You could be gazumped. Gazumping is when you have an offer accepted on a house, but the seller then pulls out if they get a higher offer. This is more likely with sealed bids because even if you’re told you’ve won the bid, the agent may encourage other bidders to bid more.
· For all these reasons, insurers will not offer Home Buyer Protection Insurance where the purchase involves sealed bids. This means you aren’t able to protect yourself financially if your transaction falls through.
Best and final offers: what are they?
‘Best and final offers’ work in a similar way to sealed bids. All interested parties are asked to put forward their offer on a property by a set deadline. But while sealed bids must be submitted ‘sealed’, usually in an envelope, this isn’t the case for best and final offers. You can make your best and final offer over the phone. But, it’s best to confirm it in writing and include the same information you would if you were making a sealed bid. So as well as including the amount you’re offering, also include important information such as if you’re a cash buyer and also provide information about your financial situation.
Credit: Home Owners Alliance