Above & Below Valuation: Am I buying above or below the latest Brick Valuation?
Note: Investors should be aware when they are transacting in Bricks the Brick Price can be at a price above or below the latest Brick Valuation.
When buying a house, a buyer needs to decide whether they are willing to pay the market value, or above or below that value. If the house has been valued at $1m, and they decide to pay $900,000 they are getting a discount to the market value. On the other hand, if they pay $1.1m it means they are paying a premium for the house.
A similar concept is explained below in relation to buying Bricks on the BrickX Platform.
Buying Bricks: Understanding Above and Below Valuation
When browsing through the BrickX properties you will have noticed that the lowest available Brick Price can be different to the latest Brick Valuation (or Initial Brick Price)*.
Lowest Available Brick Price – is the current lowest price at which an investor can buy a Brick on the BrickX Platform. The Brick Holder listing their Bricks for sale on the BrickX Platform determines the sale price for their Bricks, which cannot be more than 20% lower than the latest Brick Valuation (or Initial Brick price).
Brick Valuation – is the value of an individual Brick within a BrickX Trust, incorporating the property, cash reserve, unamortised acquisition costs and debt. The property value is based on the latest independent valuation. Remember, there are 10,000 Bricks per BrickX Trust.
Every 6 months BrickX arranges an independent valuation for each property and the Brick Valuation will only be updated following this independent valuation. Note that when the property is purchased, up until the first the independent valuation, the Initial Brick Price is the term used for the Brick Valuation.
The percentage difference between the latest Brick Valuation and the lowest available Brick Price is shown on the BrickX Platform, so investors can understand if their buying transaction will be above or below the latest Brick Valuation. For every transaction there needs to be a buyer willing to buy Bricks at the price they have been listed for sale at.
What does transacting Below Valuation mean?
If Bricks are transacting Below Valuation, an investor would be buying Bricks for a lower price than the latest published valuation of that Brick. Using the original example of purchasing a house, if the house is valued at $1m and the buyer has been able to buy the house of $900,000, they have bought that house at a discount. In the Brick example below, the Brick Valuation is $137.87 and the lowest available Brick Price is $133.00. As stated earlier, the price Bricks are listed at is determined by the Brick Holder who is selling their Bricks but cannot be more than 20% lower than the latest Brick Valuation. To be able to sell Bricks there must be a buyer willing to buy those Bricks at the price they have been listed at. See example below.
What does Above Valuation mean?
If Bricks are transacting Above Valuation, an investor would be buying Bricks for a higher price than the latest published valuation of that Brick.
Let’s return to the opening example of purchasing a house. The purchaser decides to pay $1.1m for a house that is valued at $1m. The house would need to rise in value by $100,000 before it is worth the amount the purchaser paid for it. If the purchaser, for whatever reason, decides to sell that house after six months and it is still valued at $1m and it is sold for $1m, they would make a loss of $100,000 on the house.
In the BrickX example below, the Brick Value is $68.75 (based on the value of the underlying property and considering certain costs and debt). The Lowest Available Brick Price is $73.00 (the lowest price a Brick Holder is willing to sell their Bricks). If an investor decides to buy the Bricks at $73.00 and then lists those Bricks for sale again six months later, whilst Bricks can be listed for sale at any price, it cannot be guaranteed that the price they are sold for will be at the same premium the Bricks were purchased for, and if the latest Brick Valuation is still $68.75, then a loss may be made on the sale of those Bricks.
As with any investment, the value of Bricks can rise and fall. See example below.
In the instance that a Brick is trading at Above Valuation by 10% or more, investors will see a price alert message (see the example below) ahead of transacting.
*New properties will show Above/Below/Equal to Valuation in relation to the Initial Brick Price until the first independent valuation is carried out.
If you are unclear about what buying Above or Below Valuation means you should seek your own financial advice. You should also refer to the ‘Key risks of investing’ in the PDS to understand what influences the Brick valuation.
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