Market Value and Compulsory Auction: How the Value Is Set and What the 5/10 and 7/10 Thresholds Mean

In a forced auction, the market value is the central figure: it determines the level of security performance and bids, the award thresholds, and ultimately whether an award can be granted at all. Anyone participating as a bidder or affected as an owner by an auction should understand how this value is determined – and what the frequently cited 5/10- und 7/10-Grenzen mean.

How the Court Determines the Market Value

Before the auction date, the enforcement court has the market value of the property determined. For this purpose, it generally commissions a valuer with a market value appraisal. The basis is § 194 BauGB in conjunction with the ImmoWertV – valuation is thus carried out using the same methods (sales comparison approach, income approach, cost approach) as outside the auction.

The appraisal report does, however, take the special situation into account: restricted interior inspection, possible encumbrances in the land register (rights of residence, usufruct), existing tenancies, and the condition of maintenance. Pursuant to § 74a (5) ZVG, the court determines the market value by order. The parties involved can challenge this determination with an immediate complaint – an important point of entry if the value is obviously set too high or too low.

The 7/10 Threshold (§ 74a ZVG)

If the highest bid in the first auction date remains below 70 percent of the established market value, an entitled party whose rights would be adversely affected by the low bid may apply for the refusal of the award. The award is then initially not granted; a new date is set. The 7/10 threshold thus protects creditors and the debtor from the property being sold too far below value in the first round.

The 5/10 threshold (§ 85a ZVG)

Section 85a ZVG is even stricter: If the highest bid does not even reach 50 percent of the market value, the award must be refused ex officio – regardless of an application. This absolute lower limit prevents the property from being sold off at a loss.

However, both thresholds only apply in the first auction date. If a further date is set, they no longer apply: Then the award can generally be granted even at a significantly lower bid. This is precisely why the spectacularly low awards usually occur in second or third dates.

Significance for Bidders

For prospective buyers, the established market value is the most important reference point – but not the whole truth. The court appraisal often relies only on a limited inspection and is not infrequently already months old by the date of the auction. An independent, current condensed appraisal report or an expert opinion helps to assess the actual condition, the backlog of maintenance, and possible land register encumbrances, and to determine a reliable bidding limit. Anyone bidding into existing rights should be aware of their impact on value.

Partition auction: A special case among co-owners

The partition auction must be distinguished from the forced auction to satisfy creditors. partition auction It serves to dissolve a community of co-owners – for example, in the case of inheritance communities or divorce, when the co-owners cannot agree on a voluntary sale. Here too, the court determines the market value, and the same value limits apply. For the parties involved, an independent market value appraisal is particularly valuable here, as it provides the basis for negotiations for an amicable settlement and can avoid a often loss-making auction altogether.

Conclusion

The market value is the foundation of every forced and partition auction: It is determined by the court via an appraisal and safeguarded against fire sales by the 5/10 and 7/10 limits of the ZVG (German Forced Auctions Act) – however, only in the first auction session. For bidders as well as for affected owners, an independent, current valuation assessment is worthwhile to realistically assess opportunities and risks.

The Real Estate Valuer office STRECKEL prepares market value appraisals and condensed appraisal reports for forced and partition auctions – for bidders, co-owners, inheritance communities, and separated spouses. Book a non-binding consultation appointment now.