Seal of approval? The pros and cons of sealed bids

Seal of approval? The pros and cons of sealed bids

It’s tough to find a home these days. There’s a shortage of stock – the worst since 2015 according to reports – and prices keep rising like escaped helium balloons. Consequently, there’s a stampede whenever good homes in desirable locations come to market. Bidding wars are the result. And, if the offers just keep flying in without a resolution, sealed bids are often the outcome.   

But what, precisely, happens when a property goes to sealed bids? Is it a good way to buy property? And what can you do to maximise your chances of success? Here are some hints and tips to scribble down on the back of a (sealable) envelope. 

Sealed bids 101

Estate agents usually introduce sealed bids when multiple offers from multiple parties keep going up incrementally. The agent will ask interested parties to submit their ‘best and final offer’ before a certain deadline. When these offers are put in writing, rather than simply communicated by phone, it’s called ‘sealed bids’.

The crucial detail here is that potential buyers won’t know how much other parties have offered. It’s a blind auction. Therefore, you have to bid the maximum amount you’re willing to pay. After all, you won’t get another opportunity to secure the property. This, as they say, is it. 

But it’s not just about bidding the highest amount. A seller will also take a buyer’s position into account. You’ll therefore need to state whether you’re in a chain and, if so, when your sale will complete. Cash buyers will also need to provide proof of funds whilst those requiring a mortgage should provide evidence that it’s agreed in principle. 

When the deadline passes, the seller will look at the bids in their totality, weigh them up, and decide which one to accept. It’s squeaky bum time for potential buyers at this point. The agent will inform the lucky winner and then the conveyancing process can begin.

The advantages of sealed bids

The best thing about sealed bids is that it cuts to the chase. There’s no further need for negotiations and the best and final offers format means that potential buyers always reveal their bottom line. This is fantastic for sellers as it secures a great price and pushes out unmotivated buyers who might pull out later on.     

Although buyers won’t like paying top dollar, at least they know where they stand with sealed bids. Making offers the traditional way often feels like a guessing game, with buyers very aware that agents’ experienced negotiators might talk up other interest (which may or may not be firm) in order to secure the best possible deal for the seller. A sealed bids auction sidesteps any smoke and mirrors. Therefore, some buyers prefer it. 

Finally, fierce competition for a property should reassure buyers that the asking price is fair. If you’re the only party interested in a particular property, you might be inclined to wonder why? Consequently, sealed bids can suit everyone as well as being a great way to decide who gets their mitts on homes hotter than a sunny day on Venus.

The disadvantages of sealed bids

Sealed bids aren’t for everyone though. Whilst sellers might relish the competition between buyers, agents can expect some parties to walk away rather than get involved in a bidding war. Sealed bids can be fast-paced and stressful; therefore buyers with other options might not fancy the hassle. 

The pressure buyers feel, especially as they have to make a quick decision, can also work against both parties. What if a buyer gets carried away, bids too much, and then regrets it later? Buyers who overstretch often realise their mistake and pull out later on. This costs everyone time and money. 

As a result, sealed bids don’t always provide the finality that buyers and sellers crave. Unlike Scotland, where neither party can pull out once a bid has been accepted, a sealed bid in England and Wales isn’t legally binding. What’s more, buyers can still be gazumped. And this is far more likely when several parties are in the mix. In fact, it’s not unheard of for cheeky sellers to go back to unsuccessful bidders to see if they’re prepared to offer more. 

There’s one further drawback, too. If two parties make equally attractive offers, and the seller can’t decide between them, the property might go to whoever completes the legal process first. Agents might also declare a second round of bidding. Sigh.

Secrets to success

If you’re prepared to go through all of the above, you’ll obviously want to maximise your chances of success. The key is to make your bid stand out whilst securing every little advantage possible. Firstly, never bid a round number. Always go a little higher. For example, rather than bidding £325,000, try £325,101. Then you’ll avoid bidding exactly the same number as another party. 

Secondly, your sealed bid should always include a letter that proves how serious you are. State your position clearly. Suggest a clear timeline you’d like to stick to. Give your solicitor’s details up front. And provide proof that the necessary funds are in place. This will show that you’re an organised and motivated buyer. 

Another good tip is to include a statement outlining why you love the home. This creates a personal touch and should endear you to the seller. The goal is to reassure them that their prized possession will be in good hands should they pick you. It’s also a good idea to deliver your offer in person so you know it’s actually been received. 

The biggest issue, however, is knowing how much to bid. Go too low and you’re likely to lose out. Go too high and your lender won’t cover the full price agreed. It’s the mother of all conundrums. 

Our advice is therefore to keep a clear head and stick to your original budget. A ‘win at all costs’ mentality can be dangerous. Research what similar properties in the area sold for and don’t forget the extra cost of potential renovations. See if you can find out how many other parties are bidding, too. Cunning, eh?  

Bid adieu to doubts

If you fall in love with a highly desirable home in a prime location, there may be no way to avoid sealed bids. However, there’s no need to be intimidated. Yes, a sealed bids scenario usually helps the seller. But if you know exactly how much you’re willing to spend, and you’re in a strong position with funds readily available, then you could strike a quick deal at a price you’re happy to pay.

The key, of course, is to avoid those rookie mistakes: don’t bid so much that you regret it, and make sure you understand the risks. Meanwhile, sellers shouldn’t just accept the highest bid, either. A buyer’s ability to proceed is priceless.

Consequently, although sealed bids can be an emotional rollercoaster, at least it enables everyone to move forward. What’s more, there’s something refreshingly simple about the process: the best bid wins. End of. Indeed, it’s the living embodiment of the old truism: a house is always worth what someone is willing to pay for it. 

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