Imagine the following scenario. You search the city looking for your dream home. You find it. You fall in love. It is a beautiful condo in your favourite neighbourhood. You were pre-approved for a mortgage and, just your luck, your dream home is just within your budget. Your offer to purchase is accepted, you send the details to your lender and start planning your move.
A few weeks later, you receive a surprise call from your lender. Your mortgage application has been denied because the owners in the strata corporation haven’t obtained a Depreciation Report. Your lender is concerned that you won’t have enough equity in the property to pay for unexpected repairs.
This is already happening and it is about to become a lot more common, especially for first-time homebuyers without large down payments. In 2009, BC’s government passed legislation making it mandatory for all strata corporations with five or more strata lots to obtain a Depreciation Report, subject to a few exceptions.
Why do Depreciation Reports matter?
All too often, unfortunate owners purchase dream homes only to have them turn into nightmares. I have heard many stories of new owners learning about long-standing building defects and desperately needed repairs only after moving into a strata property. Often, there is no official record of these problems until just before the money is raised to fix them.
Depreciation Reports are a special kind of disclosure document that must be prepared by a qualified person. They contain a detailed inventory of a strata corporation’s assets and property, as well as its long-term financial liabilities, thus making it difficult for owners to cover up building and maintenance deficiencies and allowing current and prospective owners to plan for future investments.
The hope is that Depreciation Reports will help reward those owners who invest in their buildings by increasing property values and that, conversely, strata corporations that choose not to make prudent investments or repairs will find this reflected in the market price of strata lots.
If you find your dream condo, try not to fall in love until after you read the Depreciation Report. In fact, read as many Depreciation Reports as you can. This will help you get a sense of what to expect. If there is no Depreciation Report or you have trouble obtaining a copy, odds are that the strata corporation is afraid that the Depreciation Report will uncover problems. As the old saying goes, it is what’s inside that counts.
Originally published in the British Columbia New Condo Guide – January 10, 2014 at page 68.