Sealed Bid Sales – A Profitable Option

April 25th, 2013 by melissa

Buyers and sellers alike are most often drawn to live, open-outcry auctions in real estate. Who doesn’t love the excitement of a fast-talking auctioneer and a competitive crowd angling for the winning bid of a much-coveted property? Our recent survey showed that once again, this type of auction ranked number one as the most successful among our clients in selling a property. Although this appears to be the norm, Sealed Bid auctions are starting to make more noise in the industry. While the Sealed Bid auction rated in last place under most successful auction type, this option comes with many benefits when dealing with specific sales.

Let’s clarify how a Sealed Bid auction works: In a Sealed Bid auction, all bidders simultaneously submit confidential sealed bids to the auctioneer by a certain date. The seller then  chooses the best offer. There are positive aspects for both sides: Buyers are often attracted to this type of sale since this process eliminates the factor of live competing offers and removes negotiation issues. Many sellers find this choice appealing when there is a need for background information on potential buyers. “We have the ability in a Sealed Bid sale to select the bidder that meets the seller’s criteria, where in a live auction people show up and you really don’t know anything about the bidders,” says Evan Gladstone, Founder and Executive Managing Director of Chicago-based NRC Realty & Capital Advisors, LLC. “There is lots of prequalification possible in Sealed Bid sales.”

Sealed Bid sales can also save on expenses and prove to be more efficient when dealing with a high volume of properties. Commercial assets as well as residential lots are often sold in blocks, where many auctioneers see the Sealed Bid as their most lucrative option since it gives potential buyers much-needed convenience – a definite selling draw. In a recent multi-property sale, Gladstone comments on the Sealed Bid advantage, “For live auctions of widely scattered properties, we would have had to do 30 live events – we saved on cost and time from having to do that. It’s also in the sealed bid realm that when we offer portfolios, we’re able to utilize some of the methods that live auctioneers use. Auctioneers call those pick-and-choose bidding or bid by choice.  In our world, we call this bidding by preference. One bidder could bid on 100 stores and say they only wanted to buy one. That’s very hard to do in a live auction.”

Properties that draw smaller crowds can also do well in the Sealed Bid arena. “Often times we’ll have properties where there’s only one bidder. We’re able to sell that property to that one bidder through the process. In a live auction with one bidder, maybe you have an opening bid and that’s it,” Gladstone says. Then there’s the auction with an abundance of bidders, where Sealed Bids can sort through the fray and quickly bring the meatiest offers to the surface. “The other end of the spectrum is a huge amount of interest and ten or 15 bidders. In a sealed bid, the bidders send their signed purchasing contracts in with their cashier’s check and that’s the way to bid,” Gladstone reports. “You have 15 bids on the same contract form, all with cashier’s checks – so you’ve got a real opportunity to go back to the top several bidders, negotiate with each one, one on one, until you get to the highest price.”

So obviously Sealed Bid sales have carved out a profitable niche for themselves in the auction sector. Needless to say, we may be seeing Sealed Bids ranking a bit higher in next year’s survey.

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