What are sealed bids?
A sealed bid house sale can result in a selling price that’s well beyond your expectations. Sealed bids also help a buyer to focus on how interested they are in a property, motivating them to organise their finances and prepare themselves to buy.
So, how does it work? The sealed bid process essentially invites prospective buyers to submit offers at or around a predetermined guide price. Next time you look into an estate agent’s window you’ll probably notice that some properties use the phrase ‘Offers over’ – these are likely being sold via a sealed bid auction.
So, if sealed bids are a better way to sell, why doesn’t everyone use them? Well, in some parts of the UK they do. In Scotland, all properties are sold by sealed bids – so much so that the sealed tender process is sometimes dubbed the ‘Scottish system’.
How does a sealed bids property auction work?
With a sealed bid auction, when a property is put on the market, a closing date is agreed by the estate agent and the seller. Prospective buyers need to view your home and make their offer by sealed bid before this date for it to be considered.
As with most competitive processes, more interest and enthusiasm is generated and this usually increases the number of offers made and results in higher bids. Buyers also welcome this completely fair and transparent way of securing their new home.
And how should sealed bids be submitted?
The term ‘sealed bid’ may conjure up images of secrecy and intrigue but, believe us, the process is anything but. A prospective buyer will first need to put their offer in writing along with details about their finances – for instance, their proof of deposit and mortgage agreement in principal – along with their current buying position (e.g. whether they’re a first time buyer or in a chain).
It’s not unusual for the buyer to include a personal letter to the seller, explaining why they love their home and hope to have their offer accepted.
Next, the prospective buyer needs to submit their offer in a sealed envelope to the seller’s estate agent on or before the closing date. We always recommend delivering the envelope in person to limit the chance of the sealed bid letter going astray.
On the advertised closing date and time, the seller is invited to the estate agent’s office to open the bids and decide on the most suitable offer for them. This might not always be the highest offer and can depend on the buyer’s position.
So, are sealed bids legally binding?
In spite of their formality, sealed bids are not actually legally binding – in England and Wales, at least. Either the seller or the buyer can still back out at any point before contracts are exchanged.
However, for a seller, the sealed bids process does reduce the likelihood of accepting an offer from an unmotivated buyer, since they’ll have to make their best offer and disclose how they’re planning on paying for the property. A sealed bid house sale helps to give some buyers the impetus they need to get their affairs in order ahead of buying a home. After all, they’ll potentially be in competition with other buyers, so they’ll realise what is at stake,
What are the rules for sealed bids?
Prospective buyers must submit their offer on or before the closing date. The sealed bid must be in writing and in a sealed envelope.
The sealed bid letter should contain:
1. The buyer’s offer.
2. Details about how they will pay for the property.
3. Whether their offer is contingent on the sale of their home.
4. Any other information which would demonstrate that the buyer is ready, able and willing to proceed.
5. A personal note to the seller, if you so wish.