I was involved in a sealed bid for clients last month. We lost the bid yet still bought the property. So what happened? I will get back to that but first.
Most buyers hate sealed bids. There is the feeling that you are being bullied or effectively swimming with sharks. Although I can understand why some people feel like this it is actually completely the wrong way to look at the process.
Now in the first instance I need to reiterate that there is probably a better property available that you may have overlooked. You may remember me telling you about the client who bought a fantastic apartment while 11 parties were involved in a sealed bid on an inferior property three minutes’ walk away.
So first of all, please make sure that you are seeing all the best opportunities available. If you are relying on websites and “property alerts” I guarantee that you are not doing this. In fact you are doing what every other buyer is doing which is why you are getting involved in sealed bids in the first place.
Nevertheless, sometimes sealed buds are unavoidable. In thirteen years of acquiring property for clients in London I have been involved in only 5 sealed bid situations. The most recent was one month ago and we lost, but still ended up buying the apartment. How did his happen?
Well the first rule to sealed bidding is very simple:
DO YOUR RESEARCH – Firstly establish what is fair value for the property. Then you need to ask yourself “what is the property worth to me”? You can also ask how many other people are involved in the sealed bid, whether they require mortgages, what would make the offer more attractive to the seller and numerous other questions.
However, in a sealed bid with more than two parties these additional questions are ultimately pointless because you can only guess what the other bidders might do. So the only two questions you need to ask are:
“What is the property worth to me?”
“At what price do I not mind losing the property?”
This is important because it puts you back in control. If you set your “walk away” price and terms, it doesn’t matter if it sells for more. So be it. You made the best offer you were comfortable asking and if someone wants to pay more, let them! There will always be other properties.
It’s That Simple
Yes it would be nice to acquire a bargain but if you secure the property at a price with which you are comfortable then you should be happy. If the property is that good then it is likely to sell well when you decide to move. And if you are not confident that it will be easy to sell in the future then you seriously need to consider what you are doing bidding in the first place.
And if you do not win the sealed bid, that is not the end. We had the second highest offer out of six parties. After ten days the “winner” of the bid decided not to proceed. This actually happens quite a lot. In many cases buyers have not done their research and get carried away with their offer only to realise later that they cannot afford it (e.g, the mortgage company will not lend them as much as they first thought).
Indeed some people put forward high offers and then they try to negotiate a lower price just before exchange of contracts. More often than not this annoys the seller who will then go to the “under-bidder”. In some cases the under-bidder may have found somewhere else so you can come third or fourth in the bidding and still buy the property.
So simply put your best offer forward based on a serious analysis of what represents fair value for the property and the premium you are willing to pay (or not). You should also add any other terms that might make your offer more attractive. For example, you are a cash buyer, can exchange quickly, offer a delayed completion, will rent the apartment back to the owner or whatever option is relevant.
You can try to be clever and second guess the other buyers but this will normally lead to a situation where you discover after completion that it was bought at a price that would have been acceptable to you. Most people I know kick themselves when this happens.
Of course you may be tempted to bid low and then increase your bid if you lose. The problem with this strategy is that there is no guarantee that the seller will accept your improved offer even if it is now the highest offer. The reason is that you will appear untrustworthy. You have tried to play the system and there is no guarantee that you will not then try and ask for a price reduction before exchange.
Many sellers, but admittedly not all, will not want to do business with you. In this instance you will also be treated warily by the agents in the future who can no longer trust you to act professionally. So I would strongly advise against this course of action.
If you would like to discover more about the negotiation strategies and buying property in prime central London, you can get in touch here.