Sealed Bid Auctions Explained

So, what exactly is a sealed bid auction and how does it affect you as the potential buyer? Read all about in In-Deed’s in-depth guide.

Sealed bid auctions are a common way of setting a house purchase where there are a number of buyers interested in the property. In particular, sought-after London properties are often dealt with in this way as it is seen as the fairest way to deal with multiple bids. 

What does a sealed bid auction mean?

When more than one person is interested in buying a property, sealed bids are invited from all of those who are keen to buy. Estate agents use this method because every buyer has a chance of success while the seller has the chance to achieve the highest possible price. The seller will set a guide price and invite confidential bids.

The estate agent will set a date and time for the receipt of a sealed bid. You will send, in writing, your “best and final offer” to the estate agent. At the appointed date and time, the estate agent will open all the bids and invite the seller to choose which one to accept. Obviously, on most occasions, the seller will choose the best offer in price but also the one that’s most likely to proceed to completion.

Is a sealed bid legally binding?

No, a sealed bid is not legally binding and offers no more security than England and Wales’ usual house-buying system that a purchase will be completed to either party. The seller remains in control and does not have to accept the highest bid or indeed any of the offers. In fact, it is not unusual for a seller to accept one bid and then try to negotiate a better deal with one or more of the other parties who also made an offer to try and increase their sale price. This is gazumping, where the original offer is trumped by a later, bigger bid.

However, the purchaser can also pull out of the proposed sale at any point until contracts are exchanged, so sealed bid auctions offer no protection to either buyer or seller.

How much should I bid?

As with any property purchase, your offer will depend on what you can afford but also what you feel the property is worth. Some sellers will set a guide price that is more of a wish list than a realistic valuation, while others will be much more genuine in what they want. This is the stressful part of the process because you may be tempted to overbid simply to have a chance. But overbidding could be financially disastrous if the lender then values the house lower than the offer you have made, leaving you with a gap between the funds you can access and the price the seller has accepted.

The estate agent can guide you on the sort of price the seller is hoping to achieve, but remember, they have a vested interest in achieving the highest price, so take their advice with a pinch of salt. Do have a look online at what similar properties have sold for in recent months, taking into account any potential work that might be required or any extras that this property might have.

How can I make my bid a strong one?

In your confidential bid, include any additional information that proves your intent and ability to proceed with the purchase through to completion. The estate agent again will guide you on what they require for each sealed bid, but in general you should include:

  • The amount you are borrowing and details of your lender
  • 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

You could also include a cover letter in with your bid, addressed to the vendor, that gives them some idea of who you are. Some sellers are often swayed by that kind of personal touch, especially when bids are close in price.

What happens if there are identical offers?

Occasionally there may be identical offers, but you can avoid this by bidding an odd number of pounds and pence – for example, £299,995.80. When there are identical bids, the seller can decide which offer to accept in one of a number of ways. They include:

  • A survey race by which the first person to show their commitment by commissioning a survey will have their bid accepted
  • A contract race where the first party to exchange contracts wins (less likely because of the expense involved that can leave both parties out of pocket)
  • A second round of sealed bids

Tips for buyers making a sealed bid

Increase your chance of winning a sealed bid auction by following our top 10 tips:

  1. Act quickly. Timing is everything. Be seen to be keen, reliable and the best at keeping the whole process moving.
  2. Get your finances in place before bidding. If you’re not a cash buyer, make sure your mortgage is agreed in principle before you bid. This shows your intent and that you’re serious about exchanging contracts quickly.
  3. Find out how many people are intending to bid. This will give you an idea of the competition and also determine how much you bid.
  4. Don’t overbid. It’s tempting when you think you’ve found your dream home to throw caution to the wind. But only bid what you can afford and what you believe the property is worth. 
  5. Always offer an odd number of pounds and pence. That reduces the likelihood of identical bids.
  6. If you do bid over the asking price, make sure you can cover the difference between your mortgage offer and the bidding price. Lenders will only lend what they feel a property is worth.
  7. Instruct a solicitor before making a sealed bid. That will mark you out as a serious buyer and prove you are ready to act quickly. At In-Deed, we can instruct a solicitor on your behalf in a matter of hours, and you can complete the initial paperwork before you even find a home you want to buy so you’re ready to go.
  8. Instruct a survey before making a sealed bid. It shows you are serious about buying.
  9. Flag up what makes you a good buyer. For example, you’re a cash buyer; have no chain; have a mortgage offer; and have instructed a solicitor.
  10. If your bid fails but you still want this property, offer to negotiate with the seller. Sealed bids are not legally binding, so you still have room to manoeuvre.