Do sealed offers for a house push the envelope for you?

The party game "pin the tail on the donkey" may be a distant mem- ory, but if you find yourself among a group of buyers vying for the same property, you could be given a stark reminder.

A buoyant housing market and more immediate means of marketing a property, such as the internet, have led to more homes being sold through sealed or "blind" bidding. The system, well established in Scotland, involves all interested parties submitting a one-off "best and final" offer to the vendor – usually via their estate agent but sometimes their solicitor – in a sealed envelope.

All the offers are secret and based solely on what the bidders can afford or are prepared to pay for the property. All envelopes are opened at the same time and the vendor can then choose which one to accept.

But it might not be a simple case of going for the biggest bid, says Melanie Bien, associate director at broker Savills Private Finance. "If one party offered £400,000 and another bid £380,000 but had no chain, the seller might go for the lower one if it was important to move quickly."

Sealed bidding has traditionally been used in rural areas where residents are familiar with each property, but it has now found its way into the mainstream buying process, says Melfyn Williams at the National Association of Estate Agents (NAEA). "Sealed bidding is now common in cities and towns, and especially popular in hotspots like London and the South-east where certain properties are in short supply."

Ms Bien says: "Lack of supply has meant much more demand and even standard family homes can attract competition from more than one buyer."

Sealed bidding is similar to buying at auction in that a decision is arrived at quickly. An important difference, though, is that auction goers are aware of what others are bidding and can respond accordingly, which often results in a higher final price. Further, when the gavel goes down at an auction, the successful bidder must come up with a 10 per cent deposit there and then, and must also complete within 28 days – neither of which is required with sealed bidding.

However, there is a less common sealed bidding process known as "formal tender", which bears a closer resemblance to buying at auction. "Formal tender requires each party to submit a cheque for 10 per cent of the offer price along with their bid," says Mr Williams at the NAEA. "This will be cashed immediately if they win, and they will go on to complete within 28 days.

"In fact, the only difference between this and an auction is that the formal tender is carried out blind."

There are several clear advantages for vendors who opt to sell their property through a competitive sealed-bidding process rather than putting it on the market in the usual way.

"Not only are you more likely to get a higher price than with a normal sale, there is also a quick resolution as all parties must deliver bids by a given deadline," says Ms Bien.

She adds that sellers will be able to "play buyers off" against each other, as they will feel under pressure from the competition.

On the flipside, though, just because a vendor has accepted a sealed bid doesn't make it legally binding. In a way, the buyer and seller are in the same position as they would have been if the bid had been accepted by conventional means. The outcome still hinges on survey results, for example, and the buyer could still change his mind.

"This would leave the vendor with no one interested in their property and would be extremely frustrating given that they had so much interest before," says Ms Bien.

There are few advantages for buyers in the sealed-bid system. "Most try to avoid them as, even if you do win the house, you know you have paid over the odds for it," says Miles Shipside at the property website Rightmove. In addition, the vendor can pull out of the process at any time up to the point of exchange, which can result in a buyer wasting money on surveys and legal fees.

There have also been allegations of unscrupulous agents passing inside information on other bids to a favoured buyer, or ensuring that developers win bids for a cut of the profits. But behaviour like this is very rare, says Mr Williams, who advises using an estate agent that is a member of the NAEA or the Royal Institution of Chartered Surveyors.

While agents have welcomed the resurgence of sealed bids, they acknowledge that the fact the property market is coming off the boil will translate into a tailing off in this system of buying and selling.

In March, London estate agent Ludlow Thompson reported that up to 100 buyers were interested in some properties, leading to a record level of sealed bids.

Last week, however, Suzanne Gray, director of sales, said: "Sadly, sealed bids are less applicable to these slower market conditions. We haven't needed to use one for weeks."