[Real Estate AtoZ] Busy Auction Market... The Reason Behind the Doubling of the Winning Bid Rate

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[Asia Economy Reporter Ryu Taemin] The real estate auction market, which had been overlooked, is gaining popularity again. As the overall housing market slows down and properties put up for auction repeatedly fail to sell, bid prices have dropped. With the growing perception that acquiring a home through auction is relatively cheaper than buying through subscription or sale, the winning bid rate has doubled, attracting significant market attention.

Winning Bid Rate Doubled in a Month, What’s the Reason?

The winning bid rate refers to the ratio of properties with confirmed winning bidders among those put up for auction. For example, if 100 properties are listed and 40 are sold, the winning bid rate is 40%. In fact, last month, 112 apartments in Seoul were listed for court auction, and 50 of them found new owners, resulting in a winning bid rate of 44.6%. Compared to December last year, when only 24 out of 134 auctioned properties were sold, recording a winning bid rate of 17.9%, this is about 2.4 times higher.

A figure often confused with the winning bid rate is the winning bid price ratio. The winning bid price ratio is a price concept that indicates the ratio of the winning bid price to the appraised price. For example, if an apartment listed for auction has an appraised price of 1 billion KRW, the minimum price for the first auction is 1 billion KRW. If the property is sold for 1.2 billion KRW, the winning bid price ratio is 120%. Conversely, if the property fails to sell and is sold at a price lower than the appraised value, the winning bid price ratio can be below 100%. For instance, if sold at 800 million KRW, the winning bid price ratio is 80%.

Does Two Failed Auctions Mean a ‘Half-Price Apartment’?

If no one bids on a property in an auction, it is called a failed auction. Properties that fail to sell are re-auctioned at a lower minimum price. This reduction rate is called the auction price reduction rate and varies by court.

By region, in Seoul, the auction price reduction rate is set at 20% for all courts. In Busan, the Dongbu and Seobu branches have a 20% reduction rate, but the Busan District Court applies a 30% reduction. In the metropolitan area, both Incheon and Gyeonggi regions have a 30% reduction rate. However, the Anyang branch has a lower reduction rate of 20% compared to other areas.

For example, if an apartment appraised at 1 billion KRW fails to sell in the first auction, the minimum price is reduced by 20% to 800 million KRW. In the second auction, bidding starts at 800 million KRW, and if it fails again, the minimum price for the third auction is reduced by another 20% to 640 million KRW.

The recent popularity of the auction market is due to the influx of properties that have failed multiple times. Since the second half of last year, the auction market has also cooled, and the winning bid rate has rapidly declined. For Seoul apartments, the winning bid rate dropped from 56.1% in June last year to below half at 26.6% in July, and further down to 14.2% in November. As apartments listed for auction fail to find new owners, the minimum auction prices have fallen to about half, attracting buyers looking for affordable properties to the auction market.

However, a low minimum price does not guarantee a cheap winning bid. Even if the winning bid price is lower than the appraised price due to failed auctions, it is still necessary to compare it with actual transaction prices or asking prices in the sales market. Additionally, properties that fail repeatedly may have complicated rights issues. Therefore, it is essential to conduct a thorough rights analysis to ensure there are no additional costs to be paid after winning the bid.