The bidding process: buy your dream home at auction

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28.01.2021 | 2 minutes

In Switzerland, more and more properties are changing hands through the bidding process. This purchase method is becoming increasingly popular, especially in metropolitan areas. In this process, several competing prospective buyers submit bids for a property. We explain how it works.

Anyone who wants to buy a house is more and more frequently encountering the bidding process as a method of sale. In this process, the seller advertises the property, lists all the relevant information about it and proposes at least one viewing appointment. After inspecting the property, the prospective buyers submit their bids in several bidding rounds, like in a standard auction.

In some cases, however, the process starts with initial bids from prospective buyers. After that, the seller decides who to invite to look round the property. In contrast to a conventional auction or forced sale, the bids are not binding for the interested parties. This means that even the highest bidder can withdraw their purchase offer at any time.

Buying your dream home via the bidding process: this is how it works

Anyone wishing to participate in a bidding process should be familiar with what’s involved. To ensure a transparent and fair auction, the seller should clearly communicate at the outset what the process will be. They should be as open as possible about when a viewing will be organized, the number of rounds in which interested parties can submit bids, and the deadline for each one. Typically, the bidding process then proceeds as follows:

1. Look at the exposé

Each bidding process starts with the exposé. In it, the seller provides all the relevant information about the property such as the location, size, year of construction, floor plan and condition. Ideally, informative pictures, a viewing date and a clear schedule should also be given. A minimum bid is not required, so in some cases interested parties are asked to estimate the price. According to the basic information from the exposé, a price range of how much the property is worth can be calculated using the key4 property assessment tool. The calculator is available free of charge and enables you to gain a more precise idea of the price before the bidding process begins.

2. View the property

During the viewing, prospective buyers get a feel for whether the property really could be their dream home. They also have the chance to make sure that the information in the exposé is accurate. This is especially important when no minimum price is required for a purchase: first visit the house, then make an offer.

In the course of the actual viewing, it’s advisable to have an expert with you – this could be a representative from your bank, a real estate agent or an architect. They can help determine a fair price for the property.

3. Apply for a financing certificate

If a property has attracted the interest of a potential buyer, it’s a good idea to obtain financing confirmation from a mortgage provider. The financing certificate is a non-binding assessment of your financial situation and shows that you can afford a property up to a certain purchase price. Especially when buyers are taking part in a bidding process, this shows them exactly what’s feasible and how high their maximum bid for the property can be. The seller, in turn, can be sure that the buyer can actually finance their bid. This can give participants an advantage over other bidders. The financing certificate, also called financing confirmation, can easily be applied for online from key 4 and is issued within 24 hours.

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4. Place a bid

Purchase offers are collected by a fixed deadline announced in advance. You are relatively free when making your initial bid because the bids of the other interested parties are not yet known. The basis for your bid is of course the purchase price range specified on the financing certificate. Especially for laypersons, it makes sense to obtain advice from the bank to ensure that you make an adequate bid. You shouldn’t exhaust the purchase price range in the first bid because you need to be able to go on to outbid the highest bid in the next round. However, if your bid is too low, this could indicate lower interest on the part of the buyer. It’s important to find the right balance.

5. Wait for the highest bid and outbid it

After all the prospective buyers have placed their bids, the seller announces the highest bid. The participants then have the opportunity to outbid the highest bidder. The seller usually sets a deadline for this. If necessary, it should be possible to renegotiate, ask additional questions about guarantees on the construction or make further visits.

6. Further bidding rounds

In some cases, a bidding process may have up to four rounds. However, the seller should specify this beforehand. This means that after the first bid and the announcement of the highest offer, the interested parties are given a chance to bid several more times. This drives up the price, but interested parties can also drop out and withdraw their bids at any time. It’s important not to exceed the budget specified on the financing certificate.

7. Your offer is accepted

If the seller accepts the bid submitted by an interested party, the bidding process is over. The next steps are the same as for any type of real estate purchase: signing the purchase contract and recording a new entry in the land register.

The highest bid doesn’t always win

Buyers should keep in mind that not only the highest bid is decisive. As with ordinary house sales, many sellers decide on the basis of whether they like the potential buyer, despite the bidding process. As well as the actual amount of the offer, the seller may appreciate the fact that a buyer doesn’t want to convert the property, or is looking for a home for their family. So even if you don’t have a huge budget, you may be able to score points with a personal interview or cover letter.

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Advantages and disadvantages of the bidding process

Under certain circumstances, it’s possible to obtain a property faster via the bidding process than through a real estate agent
Competition from fellow bidders can provide security, as it clearly shows that the property is in demand
The submission of a bid is not binding
The price can rise above market value due to competition
Bidding on a house can put pressure on you and lead to emotional decisions. This could ultimately cause you to exceed your budget
In bidding processes without a minimum price, the amount of the first bid is difficult to estimate

Conclusion: ensure success in the bidding process

With a little assistance, buying a house through a bidding process is as promising as any other method of sale. It is true that bidding can drive up the sale price of a property, and competitive pressure can lead to emotional decisions. However, the house does not always go to the highest bidder and offers can be withdrawn. Consequently, it’s crucial to keep your nerve and obtain advice. If you know your financial situation beforehand and make sure you don’t exceed the set budget, you can’t go far wrong and may soon have a new home.

> Apply for a financing certificate from key4

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