House Buying/Selling & Sealed Bids

[Jamier-Host]

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

[AndrewT]

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.

[Jamier-Host]

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

[neeko]

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

[AlunB]

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

[Jon MW]

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

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.

[Jamier-Host]

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

Cheers Alun - something for the tube home!

[Jamier-Host]

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

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

[Jamier-Host]

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

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.

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.

[Graham C]

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.

[RED-DOG]

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

[Jamier-Host]

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.

[Eck]

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.

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  )

[mulhuzz]

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

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.

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.

[Rupert]

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