Sealed Bids And Their Affect On The Property Market

Sealed Bids by James Bailey, MD at Henry & James

You hear a lot about ‘sealed bids’ in prime central London. When competition is hot between buyers, they are invited to put forward their best and final offers for the property. Many people believe it gets the best deal for the vendor, and it offers a decisive answer for the would-be buyers. Problem is, there are a lot of dangers inherent in sealed bids.

We recently had a two-bedroom flat for sale in a prestigious block in Belgravia. Three parties wanted to buy the property and all were willing to offer the £2.25 million asking price. Many other agents would jump up and down and scream, “Sealed bids!” but we were reluctant. ‘Why’, you might ask? It is often a means of getting a high price and it gets the deal done quickly. The answer lies in the fact that the vendor already had his eye on another property and were this sale to fall through, his next purchase would be in serious jeopardy. We were already asking a premium price for the flat and we felt it was better to have the proverbial bird in the hand. We carefully explained the pros and cons of sealed bids to our client but urged him to not to allow greed to get in the way of common sense.

In the end, the sale was not based solely on money. Instead, preference was shown to the party who could move within 10 working days and who could demonstrate ready access to funds. Only one party qualified on both counts and the decision was made.

Our client was thrilled as he achieved what he originally set out to do and the buyer was equally happy because he had not been fleeced. The other two bidders were disappointed, of course, but they appreciated that the decision was made with transparency and that we did not engage in a Dutch Auction scenario in which the bids just keep escalating.

We are hearing of more and more deals falling through after they have gone to sealed bids so explain the potential pitfalls to our clients. Sealed bids may be less work for estate agents but what is the point if the deal eventually falls through? The process can secure a good price, admittedly, and while some may think that ‘greed is good’, we feel that it is far more important to look at each transaction individually.

The best buyer does not always emerge from the sealed bids process and the feedback we are getting is that buyers feel ‘ripped off’ by competitive bids. It is one thing to know that a rival buyer bid just fractionally less than you did but if you are the winning buyer in a competitive bidding situation, you do not know if your bid was just slightly more or way more than the rival’s. It is fertile ground for ‘Buyer’s Remorse’, hence why so many of these deals collapse.

There are times when sealed bids are appropriate. However, we feel that a lot of agents opt for them too hastily without evaluating the needs of the client or doing their homework on the potential buyers. Our job as agents is to do the best by the vendor, not just to get the deal done quickly.

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