[Real Estate AtoZ] "No Time to Go to Court"... How to Win Online Auctions?

Editor's Note[Real Estate AtoZ] is a guide for those struggling with housing issues.
We will concisely and easily explain real estate knowledge on how to buy a house well (buy) and live well (live).

"It’s not easy to come to the auction court every weekday morning. Because of the burden of having to take annual leave or half-day leave, I have recently become interested in public sales conducted online."

Mr. Kim, an office worker whom we met recently at the Auction Court of the 4th Annex of Seoul Central District Court in Seocho-gu, Seoul, expressed that he feels burdened participating in court. Although concerns about housing prices peaking have made the court auction market a so-called ‘hot place,’ it is burdensome for office workers who have to physically visit every time. Mr. Kim’s recent interest in ‘gongmae’ (public sales) is in this context. Compared to the red ocean of auctions, public sales are less known and have lower competition rates, and it is convenient because bidding can be done with just one click.

Public Sales That End with Just One Click ? What Exactly Are They?

Public sales refer to the sale of assets by public institutions. It is a procedure where the government disposes of assets seized from tax delinquents and assets owned by public enterprises and financial institutions through the Korea Asset Management Corporation (KAMCO). Public sales include real estate such as apartments, land, and villas, as well as quasi-real estate like automobiles and ships. KAMCO announced that it has collected a total of 1.8335 trillion KRW in delinquent taxes over the past five years.

On the other hand, auctions refer to the state’s resolution of debt relationships between individuals or banks. Therefore, the legal basis differs. Public sales are based on the National Tax Collection Act, whereas auctions are based on the Civil Execution Act. Public sales are executed by KAMCO, while auctions are handled by the courts.

Similar Yet Different: What Are the Differences Between Public Sales and Auctions?

The biggest difference between the two is the bidding method. Public sales allow bidding from Monday to Wednesday through the online homepage ‘Onbid.’ The results are usually announced the day after the bidding deadline. Bidders deposit a public sale deposit equivalent to 10% of the expected bid price into a virtual account. Because bidding can be done without physically going to the court, it is very popular among busy office workers. Auctions require bidders to go to the auction court in person on weekday mornings when the auction court is open and submit documents. The results are announced immediately on-site the same day, and bidders must prepare a bid deposit at the bank, which distinguishes auctions from public sales.

The rate at which the minimum price decreases after a failed bid, called the bid reduction rate, also differs. In public sales, if the item fails to sell, the minimum price decreases by 10% from the initial expected sale price. For example, if a public sale item initially priced at 1 billion KRW fails in the first sale, the minimum price for the second auction will be 900 million KRW, and if it fails again, the minimum price will be 800 million KRW, reflecting a 20% reduction. Additionally, if the price drops to 50% of the initial price, the public sale process is suspended, and a new sale price is decided through negotiation.

In contrast, auctions apply the bid reduction rate based on the previous minimum bid price, not the initial expected sale price. For example, in an auction at Seoul Central District Court with a bid reduction rate of 20%, if an item appraised at 1 billion KRW fails in the first auction, the second auction starts at a minimum bid of 800 million KRW. If it fails again in the second auction, the third auction’s minimum bid is not 600 million KRW (which would be a 40% reduction from 1 billion KRW) but 640 million KRW, which is a 20% reduction from 800 million KRW.

Moreover, the auction bid reduction rate varies by region between 20% and 30%, so caution is needed. While Seoul courts set it at 20%, Incheon and Gyeonggi regions in the metropolitan area set it at 30%, with Anyang branch as an exception at 20%. Unlike public sales, which have a limit of 50%, auctions have no limit on the number of failed bids, so the price can continue to decrease until the item is sold.

Less Public Information and Longer Eviction Periods... Be Aware of the Risks

The key to auctions and public sales is rights analysis. Rights analysis is the process of examining the legal rights related to a desired property. For this, information about the property is crucial. Generally, public sales disclose less information than auctions, so bidders often need to do more legwork and research. Especially for properties with complex rights relationships, problems may arise after winning the bid, so caution is essential.

The methods for evicting occupants residing in the won property also differ and require attention. In auctions, after winning the bid, the ‘delivery order system’ under the Civil Execution Act can be used to evict existing occupants. This system allows the winning bidder to secure enforcement authority without a separate eviction lawsuit, enabling faster possession of the property compared to eviction lawsuits.

In contrast, in public sales, if an agreement with the occupant is not reached, the winning bidder must obtain a court judgment through an eviction lawsuit to evict them. The average eviction lawsuit takes 4 to 6 months. If an objection is raised after the result, it can take about a year, which can be a burden for the winning bidder.