[Ryu Taemin's Real Estate A to Z] Real Estate Auction Market in High Demand... Is It Always Cheaper Than the Sale Price?

Additional Costs if 'Right Analysis' Fails... Must Examine Carefully
Risk of 'High-Price Winning Bid' Above Market Price Increases Due to Overheated Auction Market Competition
High Loan Interest Rates for Winning Bid Funds... Sometimes Using Secondary Financial Institutions

[Asia Economy Reporter Ryu Tae-min] Recently, the hottest area in the real estate market is court auctions. As house prices have soared to unprecedented levels, the Seoul apartment auction market has recorded the highest average winning bid rate for four consecutive months, and the metropolitan area for six consecutive months. With competition intensifying, 'high-price winning bids' that exceed the market price are also occurring one after another.

However, in auctions, various additional costs that do not exist in regular transactions may arise beyond the apparent price, so caution is required when making decisions. A representative example is the auction balance loan received after winning the auction, which has higher interest rates than typical mortgage loans. Many commercial banks do not handle auction fund loans, so funds often need to be procured from secondary financial institutions with higher interest rates.

Failing in 'rights analysis' can risk losing a large amount of money. Rights analysis involves examining the financial relationships tied to the property using documents such as the certified copy of the register. Most debts taken over are settled with the sale proceeds and do not need to be repaid immediately upon winning the bid, but if debts not covered by the sale proceeds are assumed, the bidder's financial burden increases. A typical example is a tenant who has possessory rights but whose repayment priority is subordinate. If this tenant receives the lease deposit distribution after the sale proceeds have been fully allocated to other creditors, the winning bidder must pay the remaining amount.

If occupants such as tenants do not comply willingly due to rights issues, the cost of the 'eviction' process to remove them can be considerable. To resolve this, it is often necessary to pay moving expenses or cover overdue maintenance fees. If delivery orders or compulsory execution procedures are pursued, both the occupant and the winning bidder may waste unnecessary money and time.

Recently, with many bidders participating, winning bids have been exceeding market prices, showing signs of overheating. An 84㎡ unit (exclusive area) in Seongnae 1st E-Pyeonhansesang, Seongnae-dong, Gangdong-gu, Seoul, was auctioned on the 28th of last month for 1,037.2 million KRW, more than 2.3 times the appraised value of 450 million KRW. This amount is about 10 million KRW higher than the highest price in a regular sale transaction of 1,027.5 million KRW. A total of 72 bidders participated.

A 66㎡ unit in Miseong Apartment, Sindorim-dong, Guro-gu, Seoul, which attracted 40 bidders, found a new owner at an auction held on the 22nd for 851.77 million KRW. This winning bid was more than twice the appraised value (422 million KRW) and surpassed the previous highest sale price (840 million KRW).