The bidding process for buying a house – an overview

In Switzerland, more and more properties are changing hands via bidding process, especially in large cities and their popular surrounding areas. The process is regarded as an efficient method for selling properties, which can be advantageous for sellers in particular.

Instead of selling at a low price or not finding a buyer at all because the asking price is too high, the bidding process gives them the chance to achieve the maximum sales price within a reasonable period of time. This is one of the reasons why it is the preferred method for an increasing number of real estate sellers. However, the bidding process can also offer interesting opportunities for buyers.

The bidding process is a sales method for highly sought-after properties that involves prospective buyers submitting individual bids. It is a hidden auction. In Switzerland, this method has been established as an alternative to traditional fixed-price sales. It enables sellers to obtain the best market price for a property relatively quickly. This time factor is crucial when properties are put up for sale in a hurry, for example after the death of a loved one. When sellers opt for the bidding process, most properties are sold after three months.

A typical bidding process goes like this: the seller advertises the property publicly via real estate agents, advertisements or other marketing channels. They provide all the relevant information about the property, such as the location, size, year of construction and floor plan. They often schedule a viewing, except for investment properties.

Prospective buyers visit the property to gain an impression and decide if they are interested. They have a set period of time – usually two to three weeks – to submit an initial bid. The seller then informs the bidders of the amount of the highest bid. Anyone who can keep up financially and wants to continue can improve their offer in the next bidding round. The bidding usually ends after this second round.

However, the seller may request more bidding rounds and allow further viewings. At the end of the bidding process, the seller chooses the bidder who appears to be the most suitable buyer, or starts a new sales process.

Sellers are not obliged to accept the highest bid. The sale becomes final when both parties have signed the purchase contract and it has been notarized.

1. Preparation: as the seller, you put together all the relevant information about the property in a sales brochure (e.g. floor plans, expert appraisals, energy certificate, photos). You also define the conditions of the bidding process, including the deadline for submitting bids. The detailed bidder package can either be part of your advertisement, or can be handed to interested parties at the viewing.
2. Public announcement: your intention to sell is published with the possible date for a viewing and the indication that the sale will take place via bidding process.
3. Viewing: interested parties can find out more during the viewing appointment.
4. Obtain a financing commitment: as a prospective buyer, you should now obtain the financing commitment for a mortgage from your bank. This will indicate the price you can safely bid up to. Make sure you stick to this limit, especially as taxes are incurred in addition to the purchase price when buying a house.
5. Bidding: bids must be submitted within the specified time frame.
6. Notification of the highest bid and next bidding round: the seller informs the bidders of the highest bid and gives them the opportunity to bid again in another bidding round.
7. Decision and negotiation: the seller decides (possibly after further rounds of bidding) in favor of the bidder of their choice, and negotiates the purchase contract.
8. Completion of purchase and entry in the land register: the transaction is not concluded until the notarized purchase agreement has been signed by both parties. The next steps are the same for any type of real estate purchase: entry in the land register, financing and payment.

The sales documents should clearly describe the conditions of the bidding process and explicitly state that the sale will take place via bidding process. To ensure that the process is transparent, you should also provide information on the number of bidding rounds and the deadline for submitting bids.

Although the bidding process obtains fast results, the effort involved should not be underestimated, especially since real estate transactions are subject to different legal requirements depending on the canton. Sellers who seek legal advice from real estate law experts such as lawyers or notaries in advance are less likely to encounter difficulties.

Transparency is an aspect of the bidding process that you should pay attention to as a prospective buyer. Do you have all the information you need to obtain a realistic idea of the property? Is it possible to arrange a visit? Is the process clearly described? Will there be enough time in the course of the bidding process to obtain detailed information and clarify the answers to your questions? If this is not the case, it may be advisable not to participate.

Buyers shouldn’t expect there to be any indication of the seller’s asking price. Sellers can state a minimum purchase price, but are not obliged to do so. Interested parties are not always given the opportunity to view the property before the first bid is made; this is actually the rule for investment properties. 

The bidding process usually drives up the price. Sellers are at an advantage, while many prospective buyers are reluctant to bid or may not bid at all. Potential buyers tend to associate the prospect of lower prices and bargains with a forced sale or foreclosure. This is when the owner becomes insolvent, does not keep up with mortgage repayments, and the mortgage lender is unable to sell the property in the usual way.

Most of the auctions in Switzerland are forced sales and take place almost daily. The sales price can be well below the market price, especially in a forced sale due to bankruptcy when no minimum price is set. Price differences are also due to the fact that properties change hands without being renovated and without any guarantees. The following applies in the event of a forced sale: the party who places the highest bid and whose bid is accepted will have to pay part of the estimated value immediately as a down payment.

If, as the seller, you specify a minimum bid, this can deter bargain hunters who would otherwise bid too low. At the other end of the scale, sellers are free to decide whether they prefer the bidder with the highest bid or someone else. Sympathy can be the deciding factor, for example if the seller receives a personal letter of application or has a friendly conversation with a prospective buyer during the viewing.

For some sellers, it is more important to hand over the house to a family with children than to a group of investors with high purchasing power. A bidder who does not have any plans to convert the property and proposes attractive payment terms from the seller’s perspective, or who expresses certain usage intentions, could be given preference over the highest bidder.

Three points are particularly important if you want to succeed in bidding for a property:

1. If possible, define your financing strategy and your maximum budget with our financing experts before the viewing appointment. Possible future costs such as maintenance and any necessary renovations must also be considered. Together we will work out a fair price for your desired property. This is often difficult to estimate without market experience.
2. If you realize during the viewing that the property is your dream home, you must act quickly. Bring us the complete sales documentation. We will ensure that you receive the necessary financing confirmation, i.e. the mortgage decision or financing commitment, quickly and reliably.
3. Keep your emotions in check. The competitive situation of a bidding process exerts strong pressure on many people. You, too, could be tempted to make emotional decisions. It is best to stick to the budget that we have helped you to define.

As far as tax is concerned, property owners enjoy certain advantages in Switzerland, but also face a number of challenges. In addition, they can save taxes by opting for indirect amortization via pillar 3a. Early asset transfers and gifts can help break the tax progression. The structure of the mortgage influences the amount of gift tax due.

Whether buying or selling, thorough planning is essential to make sure that property owners can optimize their tax situation.