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Not a current concern of mine but something that comes up regularly among my friends so probably worth a discussion here.

I was buying a house a year or so ago and as the sellers were looking for a quick sale it was on fairly low and so garnered half a dozen or so asking price bids. Therefore we moved onto the (to me) ridiculous charade of "sealed bids" where everyone sticks in one final offer and the seller picks what is presumably the highest one.  When I asked the agent why it was done that way he said that people would feel pressured if it used an auction style format of escalating bids instead.  Surely if you are selling that is exactly what you want?  People getting stressed and pressured and ultimately driving the price higher for you.

Also, the "sealed bids" system isn't even binding and you can withdraw the bid even if accepted, plus the seller can just change their mind and accept a higher bid from someone else in the meantime. Nonsense.

Would be interested to hear the opinions on anyone who's been involved in "sealed bids" transactions before or people who work in the industry.  So many things about the property market are farcical but this one I thought was loony. While it lasts though we may as well come up with an optimal strategy :)

Sealed bids are simply a way for sellers to get more money - they know that, human psychology being what it is, people will bid too high for fear of missing out.

You think sealed bids would return higher than an open auction?  Would it depend on how many people you had competing?

Are you looking for an optimal situation for buyers or sellers?

I think we're making a rather bold assumption here that there is no underhand tactics taking place at the estate agents too.

If you're really interested http://sticerd.lse.ac.uk/seminarpapers/ei25062007.pdf

It will do if you can expect a very wide range of possible bids (so obviously related to the number of people competing).

But if that was the case, to get an even higher bid they should do sealed bits with the winner being the one who bids the most, but they only get to pay what the second highest bidder bid.

Cheers Alun - something for the tube home!

Both I suppose - there's bound to be a steady stream on both sides of the fence here.

In my experience you don't even get told what all the bids were (as a buyer). You'd need some way of verifying what everyone had actually submitted, plus a way to make it binding.

This is the norm in Scotland isn't it?  I'd hate to buy a house there.  Seems the asking price is a really low minimum and bid go for about 50% more.

I think I would just contact the seller direct and ask him how much he wants for his house.

Estate agents cover themselves with exclusivity contracts that prevent you from just sacking them off when you get an interested party and dealing direct. Also a lot of sellers are uncomfortable negotiating in person and prefer to do it through an agent, even if it costs them 2% for the privilege.

Unless something has changed recently this couldn't be further from the case.

We work on an offer and acceptance basis that once agreed should be binding which should remove opportunities for gazumping or whatever you call it. Think it is more the other way around i would hate to buy a house in England (even ignoring the fact that it would be in England  ;) )

The second price auction has been proven in the literature to deliver the equilibrium price. So the 'best' market price for the house.

Don't know why people wouldn't do this.

Yeah the Scottish system is better I think. All offers binding. Also houses are typically advertised as offers over which means any offers under asking price are normally dismissed immediately. They set a closing date and everyone puts in an offer then seller chooses presumably highest one. But the binding offers is good, saves a lot of hassle waiting months to see if people can get the finance etc, as well as lowballing

Oh, probably should have watched the start of that Location Location program :D  That does sound better.

Sealed bids or 'private tender' is nowadays very much the norm for selling agricultural land/property.  Nothing ever sells leaving people thinking it went cheap.

In my experience this practise is the direct result of a low supply market/high demand property, the behaviour of the public and the laws of the land. Agents aren't keen on this system but constant gazumping and re gaaumping lead by desperate buyers and greedy sellers leads no alternative. It's a sign of a low supply market. As usual blame the agent tho!

Example seller accepts offer of asking price, buyer instructs solicitor. Mr c who viewed a week prior decides he wants it and offers 10k over asking. Seller accepts. Original buyer goes 15k over. 3 weeks down the line mr c is back with 20k more, then a new buyer, mr d with 22k. Agent would have been happy to have sale complete to original buyer by now but has now wasted 20 hours dealing with disgruntled buyers... Form an orderly line with your highest bids....

But by "winning" a sealed bid still doesn't make it binding does it?

No, under English law the deal is not done until legal exchange of contracts, and yes someone could in theory come back with an even higher offer down the line (this happens).
However by the time you get to sealed bids most people are fed up with the process they have inadvertently initiated (save perhaps the seller) and some pull out.

I ought to add that if you see sealed bids in other circumstances  (and not the usual agri or dilapidated) it will be because the client requested it for some reason, perhaps probate or for the quicker sale element.

For some reason, I feel like this story belongs here.



http://www.celebuzz.com/photos/seal-buys-6-million-brentwood-home/seal-brentwood-home-6/

:)

Probably slightly off topic but I work in Mortgage Underwriting and I would absolutely hate to be applying for a mortgage at this moment in time.  Most of the companies have already adopted the MRP policies and applied this to their affordability calculators for those that haven't they will do so on the 26th of April.  I predict that gone are the days of even 90/80 % mortgages.  It all doesn't make sense, but due to a few bad apples and bad lending practices the majority are going to suffer. 

There are questions now being asked before that previously we wouldn't have bothered with, we would have made guesstimates base on mass data gathered over years but now we are looking into things in so much detail.  I normally have a nice easy job, I really can't complain I go in I do a 7hr shift, I get a good wage and leave.  But this last 2 weeks have been the most testing I have had because although I can look at individual cases and take a holistic approach too many of them there are some I look at and think I can see the merits of this but due to the new rules we are finding it impossible to make it fit affordability. 

A classic example of this was last week on 11th of April prior to my company introducing MRP on the 14th we looed at a case offered a broker £69,600 for his clients (not a lot in the grand scheme of things, they were putting up a 27% deposit so relatively low risk to us)  Broker was unable to give us an answer as had to speak with his clients as they were originally looking for £84,000.  When the broker comes back to us on the Monday we now need to underwrite the application based on the new rules its re-scored and the only difference we made was to add in £90 per month travel costs (blatant lie imo, no chance were they only paying this but whatever)  this £90 deduction reduced the maximum available loan to just over £45,000.  Sickening result for all concerned.  Our daiy volumes are around £100 - £120 million a day, we were targetting £200 million a day for July.  I'd say in the last week your luck if we underwrote £200 million in total. 

bought a house recently in bristol. through the process the worst experiences were
1. sealed bid sales - came across a few of these, only got involved in one, it ended up going for 14k over asking price which was ridiculous really. our offer was 3k over asking price.
2 open days - where they make everyone view the property at the same time.

both these tactics are pretty rancid estate agent led ways of minimising work, increasing competition and inflating prices

Exactly what you want if you're selling then! :)