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What Greater Victoria Condominium Buyers Should Ask About Depreciation Reports.

Depreciation Reports are just one  (and the latest) of a number of documents and records that provide current and future strata home owners information about the property and common areas they own or are about to purchase.

the fallsEffective December 13, 2013 all strata corporations are required to have Depreciation Reports in place. Although it is likely that up to 20% of the existing strata’s will not have completed them by then. The proper use and implications of these Depreciation Reports will make buying and owning a Strata Home a much safer and predictable lifestyle decision, however during the transition from creating the first Depreciation Report for each strata and the next few years will at time be confusing and possibly some frustration.

Let’s begin with some basics about Condominium /Strata Home Ownership:

“Condominium” refers to a legal form of ownership, as rather than a style of construction. Condominiums are  often thought of as apartments, but this ownership form also applies to townhouse complexes, some individual houses (bare-land strata’s),
low-rise residential buildings and a variety of mixed residential and commercial uses. Condominiums in BC are also known as strata’s, and are
Governed by the BC Strata Property Act.

Condominiums consist of two parts. The first part is a collection of private dwellings called “Units or Strata Lots.” Each unit is owned by and registered in the name of the purchaser of the Strata Lot. The second part consists of the common elements (areas)of the building that may include lobbies, hallways, elevators, recreational facilities, walkways, gardens, etc. Common elements may also include structural elements and mechanical and electrical services. The ownership and responsibilities of these common elements is shared amongst the individual unit owners, as is the cost for their operation, maintenance and ongoing replacement.

It is these shared costs and responsibilities that are often the cause of concerns for current and future home ownership in strata development. Traditionally, the norm has been to keep the monthly fees as low as possible and from these monthly fees a portion (10% of the budget) is to be allocated for future larger repairs/ replacement (called the contingency fund). The reality now is that this approach of keeping monthly fees low, causes that many of these strata developments are under-funded and find themselves in need of having to charge substantial special levies to the current owners to cover the expense of large upgrades or replacements.

With the New Depreciation Report Regulation (applicable to strata’s with more than 5 units), all strata’s are required to (re) assess and plan for the following;

  • What assets does the Strata Corporation Own (take inventory and record all assets). businessman_document_186242
  • What is the Condition of the Assets (evaluation of the assets)
  • When do Assets need to be Replaced or Repaired (estimating a maintenance, repair and replacement schedule)
  • How much money does the Strata Corporation have in their Contingency Reserve Fund.
  • What are the likely costs/expense for future replacement, repair, maintenance (complete with a description of the factors and assumptions in projecting these expenses).
  • How is the Strata Corporation going to Pay for these costs/expenses (and provide 3 optional cash-flow models that include 30 year replacement periods).

Review the documents offered by CHOA (Condominium Home Owners Association of BC) which offers an excellent set of resources for strata owners.

Strata Properties have been around for about 50 years in BC, and are often considered as a first entry into home ownership and or as comfortable lifestyle choice when nearing retirement age. In Greater Victoria dependent on the community up to half of the newly constructed homes are some form of “strata titled” home ownership form.

For Home Buyers that are considering purchasing a Strata/Condominium Home, depreciation reports are just one more facet of all of the various documents, details and resources that should be considered in making the right financial and lifestyle decision.

The steps to buying a Strata/ Condominium Home should include:

Here are some suggested questions that you might want to ask about the strata / condominium corporation before you make any decision.

  • Was a Depreciation Report Completed?
  • Has the Strata Corporation Received and voted on its Recommendations?
  • When if ever was there an engineer's report completed, and if so what was the result?
  • What if anything Capital replacement / upgrade projects have been completed in the last 5 years?
  • Ask for a Form B before you fall in love with the property (low contingency fund may trigger a number of questions)?
  • Is the development self-managed or do they have  professional property managers?
  • When were the strata fees last increased?

There are many other questions to ask, but these will often point you towards some potential areas of concern.

housequestion0002Here are some general rules about Strata’s…….

  • Low Strata Fees, are NOT a good thing, as it indicates that there will likely not be enough money to pay for big projects and repairs
  • Self-Managed Strata’s, carry a higher risk of none compliance and cutting corners.
  • Smaller Strata Corporations, typically will have higher fees and or special levies to maintain their common areas (economies of scale)
  • Older Buildings are more likely to need very extensive work. (and potentially may not have the funds to do the work)
  • You need a Real Estate Specialist Lawyer to interpret some of the strata documents (it is technical and complex)
  • Working with a Team of Real Estate Experts (lawyer, lender, insurance, inspector, contractor, and Peter Pfann as your Realtor) will prevent many if not all mistakes.
  • If in doubt be sure to have it checked out…

If your question is, should we buy a Strata Home?

To be honest with you, it is not a question anyone other than yourself can answer, however we anticipate that over time the use of Depreciation Reports will make your decision much easier, as this report (combined with all the other information) will offer a much better insight as to the structural and financial health of all strata’s in BC. In any event it would be my pleasure to answer any questions you may have.

 

Sources for this article include: BC Government, CMHC and CHOA

 

 

 

Peter Pfann,

CPCA, ABR, SRES, E-Pro, IMSD, Master ASA, C-CREC, Associate Broker.

Text or Talk To Peter @: (1) 250 - 213 - 9490  

peterpfann@gmail.com  www.pfanntastic.com

Pfanntastic Properties in Victoria, BC, Canada, @ Fair  Realty Since 1986.

Regional office: 1540 Fort St Victoria, BC V8S 5J2

 

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