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Sealed Bid Auctions | Common Questions
Property going to sealed bids was a fairly common phenomenon during the housing market’s peak a few years ago. However, at In-Deed we have found more and more of our clients are coping with the stress of sealed bids, despite the current housing slump! This is primarily occurring within the London property market where house prices continue to rise and demand remains high or where the purchase involved is unusual or rare.
The following article aims to guide you through the process of what to expect to from a sealed bid auction.
A property goes to sealed bids when there is more than one person interested in buying it. Estate agents resort to this method in order to give all potential buyers a chance and to achieve the best possible price for the seller.
If a property goes to sealed bids the estate agent will set a date and time for the receipt of a sealed bid. You then send, in writing, your maximum bid to the estate agent. The bids are all opened at the appointed time and presented to the vendor with the winner often being the best in both price and the ability to proceed.
A sealed bid auction is not legally binding and offers no more security to either party than the usual house-buying system.
The seller does not have to accept the highest bid or indeed any of the offers. In fact it is not unheard of for a seller to accept a bid and then negotiate with the other parties to try and increase their offer, ultimately gazumping the original winner! However, similarly there is no protection for the seller, as the bidder can still choose to pull out up to exchange of contracts.
This is dependent on what you can afford and what you feel the property is worth. Often this part is the most stressful for house purchasers as the temptation to overbid is huge. However, overbidding can be disastrous if the house is valued lower by the lender, leading to insufficient funds.
With your offer it is useful to include additional information in order to prove your intent and ability to proceed through to completion. Some of these may be required by the estate agent as a matter of course, but are useful to include if not.
You may wish to include:
- The amount you are borrowing and details of your lender
- A Proof of deposit (bank statement)
- Proof of funds, if you are a cash buyer
- A timescale to exchanging contracts and completion
- Your solicitor’s details.
Some purchasers have found including a covering letter has swayed the seller in their favour. The trick is to find out as much as possible about the vendor – for example a seller might appreciate your plans to restore their period property rather than demolish it and build a development.
Occasionally, two or more bidders offer the same price, although usually this can be avoided if you bid an odd number of pounds and pence (e.g. £199,993.62p).
However, if you do happen to bid the same amount as someone else this can be solved in a number of ways.
- Sellers may ask for a survey race with the winner being the first to show their commitment by commissioning a survey,
- A less popular option is a contract race where the first to exchange contracts wins (but this can be hugely expensive and leave the disappointed parties out of pocket).
- The seller may ask for a second round of sealed bids.
Being the most desirable purchaser is one way of winning at sealed bids as these days many sellers also take into account a purchasers ability to proceed to completion, as well as the amount they have bid. Following the tips below may help increase your chances of winning at sealed bids.
- Act quickly – Time is everything when other parties are involved. You need to come across keen, the most reliable and the best at keeping everything moving.
- Get your finances organised before making an offer – Ideally you will be a cash buyer, but if not make sure you have your mortgage agreed in principle. This proves you are a serious buyer and likely to be able to exchange contracts fast.
- Find out how many people are bidding against you – knowing this information may affect how much you decide to bid.
- Don’t overbid – it can be tempting in the heat of the moment and with your dream property at stake to over offer, but only offer what you can afford and what you believe the property to be worth.
- Always offer an odd number of pounds and pence. This reduces the likelihood of the same bid being made.
- If you decide to bid over the asking price and are going to rely on a mortgage make sure you can cover the difference – lenders will only give what they feel the property is worth.
- Instruct a lawyer before going to sealed bids – Instructing a lawyer early marks you out as a serious buyer and will prove that you are ready to act quickly. With In-Deed there are no upfront costs, but we will provide you with all your lawyer’s details almost immediately and give you the option to complete a lot of the initial paperwork beforehand, free of charge!
- Always mention what makes you a good buyer such as paying in cash, having no chain, already having a mortgage offer and having instructed a lawyer.
- If the bid fails and you still want the property remember you can negotiate with the vendor as winning bids are not legally binding.