['Hot Place' Auction] ④ "Adding an Extra Zero Could Cost Your Deposit"... What to Watch Out for in Auctions?

Increased Auction Failures Boost Price Competitiveness... Auction Market Revives
Careful Analysis of Registration Rights, Caution with Manual Bid Forms
Thorough Funding Plans Including Special Bogeumjari Loan and KB Market Prices

[Asia Economy Reporter Kwak Min-jae] On the 14th, the entrance to Auction Courtroom No. 104 at the Suwon District Court Anyang Branch Auction Division 2 was bustling with people 30 minutes before the auction started. Not only those who came to win the bid but also auction beginners on a field trip were easily seen. In fact, on that day, 6 to 7 study group members were sitting around a table, fervently filling out bidding forms and studying auctions.

People on a field trip are seen diligently studying auctions by filling out bid forms in front of Auction Courtroom No. 104 at the Anyang Branch of Suwon District Court, visited on the 14th.
[Photo by Kwak Minjae]

The real estate auction market, which had been in a state of near closure, is reviving. This is interpreted as being due to increased price competitiveness of auction properties as failed auctions rose amid weakened real estate purchasing sentiment. According to the ‘January 2023 Auction Trend Report’ released by Gigi Auction, a specialized court auction company, the number of apartment auctions nationwide was 1,736, of which 634 were successfully bid. The success rate was 36.5%. This is a 9 percentage point increase from the previous month (27.5%), and the bid-to-appraisal ratio rose by 0.8 percentage points to 75.8% from 75% the previous month. With half-price apartments appearing one after another, even auction beginners such as those in their 20s and 30s are newly entering the market. However, since auctions carry high risks as well as low prices, caution is needed as blindly jumping into auctions can lead to losses.

Importance of Analyzing Rights in the Registry’s Section A and Section B

First, it is important to conduct thorough rights analysis before visiting the auction court. Rights analysis is the process of checking whether the successful bidder must assume any rights separately from the bid amount, analyzing whether the auctioned real estate has any legal issues. It is important to obtain the registry copy and check for terms such as mortgage, secured loan, provisional seizure, and jeonse rights in Section A and Section B.

In particular, it is necessary to check if the term ‘jeonse rights’ appears in the registry. If there is a ‘tenant (priority jeonse right)’ registered but not included in the distribution, the successful bidder may have to return the deposit additionally, resulting in a loss. Senior researcher Lee Joo-hyun of Gigi Auction advised, “For example, even if you win the bid at 100 million KRW, if you have to return 50 million KRW (jeonse deposit) to a tenant registered but not included in the distribution, you effectively purchase the property at a higher price than the market value (150 million KRW = bid amount + jeonse deposit), which can cause losses, so it is necessary to check.”

On the 14th, at Sale Courtroom No. 104 of Anyang Branch, Suwon District Court, the court officer is calling out the case numbers and the names of the bidders.
[Photo by Kwak Minjae]

Be Careful of Unit Amounts When Filling Out Bidding Forms... Thoroughly Plan Financing

Since auction bidding forms are handwritten, mistakes can invalidate the bid or, in severe cases, cause the loss of the deposit, so caution is required. In fact, on the 14th at the Anyang Branch Auction Division 2, two bidders participating in the auction of an apartment with a net area of 80.18㎡ in Anyang-dong, Manan-gu, Anyang-si, Gyeonggi-do, lost the opportunity due to incorrectly filled bidding forms. In auctions, bids lower than the minimum sale price are invalid, but these bidders mistakenly reversed the bid price and deposit amount (about 10-20% of the appraised value) on the left and right sides of the bidding form, resulting in bids far below the required price and invalidation.

Additionally, there have been cases where adding an extra zero to the bid price caused significant financial loss, so meticulous attention is necessary. Senior researcher Lee said, “There are frequent cases where a property worth 1 billion KRW is mistakenly bid at 10 billion KRW by adding an extra zero, resulting in a bid-to-appraisal ratio of 1000%. Even if you give up the property, you cannot recover the 100 million KRW deposit, so you must always be careful when filling out the bidding form.”

Finally, auction participants must also thoroughly plan their financing. Failure to pay the balance within the full payment deadline results in losing the bid deposit. Especially when financing the balance through bank loans, unlike regular sales, the payment deadline cannot be extended. Senior researcher Lee advised, “It is better to know in advance how much loan you can get before participating in the auction. In particular, when using the Special Home Loan, even if the minimum sale price after failure is below 900 million KRW, the KB market price may be higher, causing situations where loans cannot be obtained, so caution is needed.”