What are sealed bids?
Sealed bid house sales can result in a final selling price that fully surpasses the seller's expectations. These sealed bids can also allow a buyer to focus their attentions on how keen they actually are in the property, which can encourage them to organise their finances and prepare themselves to commit to buying.
How does it work I hear you ask, well, the whole process basically invites prospective buyers to submit their offers meeting or in close proximatey to the guide price. You'll be able to see examples of properties being sold via a sealed bid auction in estate agent's windows, where some properties will say 'Offers over'.
Why doesn't everyone use sealed bids to sell a property then? You know, in some parts of the UK they do. In Scotland, all of their properties are sold this way - so much so that the sealed tender process is occasionally called the 'Scottish System'.
So, how do sealed bids property auctions work?
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, the more interest and enthusiasm generated usually increases the number of offers made, resulting in higher bids. Buyers also welcome this completely fair and transparent way of securing their new home.
How should sealed bids be submitted?
The term ‘sealed bid’ conjures up images of secrecy and intrigue but, in reality, 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.
Are sealed bids legally binding?
In spite of the formal process, sealed bids are not legally binding – in England, 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 unenthusiastic 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.
At a glance - sealed bid rules:
- 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.