What Is a Sealed-Bid Auction?

A sealed-bid auction is a type of auction process in which all bidders simultaneously submit sealed bids to the auctioneer. The result is that no bidder knows how much the other auction participants෴ have bid.

"Sealed bid" refers to a written bid placed in a sealed envelope. The sealed bid is not opened until the stated date, at which time all bids are opened together. The highest bidder is usually declared the winner of the bidding process.

Understanding Sealed-Bid Auction

In a sealed-bid auction, bidders can only submit one sealed bid♓ and therefore cannot adjust their bids based on competing bids. This sets it apart from the more common English auction, also known as the open ascending price auction (or open-bid auction). In this format, participants can make multiple bi🅺ds and bid against each other.

In an open-bid auction, buyers gradually improve their offers to out-bid other buyers. A sealed-bid auction encourages the opposite: beca♓use buyers only have one chanꦜce to bid they are more likely to offer the best price they are willing to make.

A sealed-bid auction process may also not be as transparent as an English auction. The seller retains a tremendous amount of control in a sealed-bid auction because they can see how each bidder values the item up for sale. Sealed-bid auctions are often used in bidཧding for government contracts.

Sealed-Bid Auctions in Real Estate Sales

The sale of real estate can be conducted through sealed-bid auctions. The process for conducting su💧ch an auction can include public advertisements showing that the property is up for bid and what the deadline and parameters are for submitting bids.

For such real estate auctions, a variety of considerations can come into play. The property should have enough demand to attract a broadꦆ field of bidders to increa🐓se the potential for a higher return. A small pool of bidders might still present worthwhile offers, but the options are also limited in such an instance.

From a certain perspective, it can be counterproductive for the seller to release such information as the assessed valuation of a property. The concern is that bidders would use that information to limit the value of their bids. Furthermore, posting a minimum bid amount might set expectations on the part of the bidders for how large their bids should be. Bidders naturally are concerned about overspending to win an auction. In a sealed-bid auction, there is an understanding that each bidder shares in that risk.

The Bottom Line

In a sealed-bid auction, bidders place a sin🍸gle bid (often sealed in an envelope) without knowing what anyone else has bi🐠d. All the bids are viewed by the seller at the same time, and the highest bid is the winner. This is different from an open-bid auction, in which buyers can see what others are offering and make multiple bids to win.

Sealed-bid auctions are often used for government contracts; each potential contractor tries to offer the best (lowest) price to win the contr🔯act. They can also be used in real estate, in 💟which case the highest bid is likely to be the winner. A sealed-bid auction benefits sellers because buyers are encouraged to offer their best bid immediately, rather than improving their offer slowly in response to how others bid.