Place your bids, please

Inviting bids for a property is becoming increasingly common, and is seen as the quickest way of securing a good price for the seller. But are housebuyers being forced to pay over the odds?
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The Independent Online

In London the sealed bid is now common practice when selling your home. You invite offers by a set date, choose the highest bidder and everyone is happy. Or are they?

In London the sealed bid is now common practice when selling your home. You invite offers by a set date, choose the highest bidder and everyone is happy. Or are they?

Increasingly agents invite sealed bids when they anticipate great interest in a property, and in current market conditions the practice is seen as the fairest way of securing the best possible price. "For the vendor the sealed bid is the best option," says Simon Homes, manager of the Peckham branch of Burnet, Ware and Graves.

Ten years ago Mr Homes saw the practice restricted to tenders for large developments. He now sees more residential properties sold in this way but says it is not a ploy to inflate prices: "We ask buyers to submit their best price but also outline their buying position and anticipate a date of exchange. It's then up to the vendor."

Unfortunately, buyers who take part may find themselves doing the work of an estate agent, particularly if a property is under-priced. Colin Brown, manager of Bushells' Notting Hill branch, says: "Sealed bids are commonly used when properties are either high quality or blatantly too cheap, and that's when you get six or seven offers. This method turns buyers into mini-estate agents. They see 20 properties, get an idea of local values and know how much they are prepared to pay for a particular type of property."

How does Mr Brown answer cynics who believe agents encourage sealed bids to push up prices and collect hefty commissions? "Properties often fetch £20,000, more but two per cent of that isn't much when you consider the time I spend explaining the situation to everyone involved. Personally I don't encourage sealed bids, but I always spell out vendors' options and this is one of them."

Mr Homes recently witnessed 10 offers on a Dulwich property and then had the task of phoning nine disappointed buyers. He offers this advice: "As a buyer you don't know what you are up against - but don't try and be clever and hold back. Offer the amount that you are prepared to pay."

With one failed bid under her belt, Jane Edge ensured that her two subsequent purchases made by bids succeeded. Earlier this year a "canny" bid of £355,100 secured her current Bristol home with these tactics: "You have to try and guess what other people will do and outmanouevre them." Ms Edge believes the sealed bid does not just favour the highest bidder and offers hope to the cautious buyer: "Part of it is about outlining your circumstances. A vendor may think it's worth accepting that bit less if you're in a good position with your sale."

Ms Edge finds the process "nerve-wracking" but remains stoical: "We've now done it three times so I don't mind it too much. With our first house I could tell you the exact date, even where I was sitting when we heard we'd got it. It was a significant moment." She does not feel that this method encouraged her to overstretch or that she paid too much and will suffer on a re-sale: "We weren't in a position to do that and if you get your location right then the same scenario applies when it comes to selling. On the positive side it sorts out the situation rapidly."

One successful bidder who found his situation rapidly, but not positively, decided was bitterly disappointed. Colin Brown was marketing a one bedroom property at £285,000 and, after sealed bids, an offer of £325,000 was accepted. On the day that contracts were sent out Mr Brown received a phone call from the furious "successful" bidder. "He'd found out from his solicitor that he'd been gazumped. One of the unsuccessful bidders had, behind everyone's backs, gone directly to the vendor and offered an extra £10,000." Mr Brown is at pains to underline his innocence of the shady deal: "As their agent, I knew nothing about it and was completely in the dark. Had the owners come to me I could have got them the extra £10,000; they later admitted that they should have done this."

Buyers tend to assume that the bids method prevents the possibility of gazumping; but Mr Brown's example, although "exceptional", shows this is not true of a practice which is, after all, not legally binding. As he says: "Until someone comes up with a fairer system, what can we do?"

The Scottish system, where the practice of sealed bids is enshrined in law, is commonly held to be fairer. But not all buyers hold this view. Iain Barrett recently bought a threebedroomed flat, in the New Town area of his native Edinburgh, via sealed bids: "It's double edged. Bid a fair price and you don't get your property. Pay over the odds and you get your house but you know that no other mug was willing to pay as much as you."

Simon Homes regularly sees bids fetching £20-30,000 more than the asking price and offers this example: "With the traditional method you may have two buyers; number one is prepared to pay £150,000, number two £200,000. Number two beats the lower offer by paying £155,000 as in an auction and you've lost the vendor £45,000. With bids the vendor gets £200,000."

Sealed bids may result in inflated prices, but participation is free. Though the method is heaper than a contracts race, the timescale involved can result in high emotional costs. Burnet, Ware and Graves regularly act for a client who insists on a six-week marketing period. After bids are collected this can mean that interested buyers may wait for up to eight weeks from viewing to know if they have been successful, producing high stress levels for all involved.

Colin Brown prefers to get the process over within the week: "I think most buyers prefer sealed bids to mortgage-offer or contracts races; and if they are unsuccessful it's something they'll get over very quickly."

Bushells Notting Hill: 0171-243 5000. Burnet Ware & Graves: 0181-693 4201

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