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Depreciation Reports Will Affect Buyer Decisions

Blog by Mike Alleyne | January 9th, 2014

December 13, 2013 was the long anticipated deadline for British Columbia strata corporations to produce condo depreciation reports. I imagine this had some strata councils of older buildings quaking in their boots. In the grand scheme, the report is good for property owners, sellers and buyers in the market because decision making power and comfort comes with information. In the short run, this report may "spook" some potential strata purchasers (particularly of older buildings).

The depreciation report is based on the onsite inspection of the major assets of the building including: roof, decks and balconies, club house facilities, air conditioning, paving, siding, elevators, boilers, water delivery, electrical, drainage systems, etc. The depreciation report also sets out the current condition of a strata building and its life expectancy.

This is powerful information for a buyer who will now know far more detail about their anticipated purchase than ever before. Consider a purchaser weighing the option of buying a new townhouse with smaller square footage or an older one with a very spacious floor plan. Both have newer finishings such as granite countertops, fixtures and cabinetry. The older townhome has been newly remodelled. The life expectancy and of the building and future anticipated levies are very key pieces of information. As the building depreciates, so too does that part of your asset. No amount of remodelling inside your suite is going to extend the life of the external building structure. On the other hand, the building may be well built and maintained and the life expectancy of the older building is far longer than you anticipated. The information in the report is key in this situation and will likely give the buyer the additional information needed to make the decision between new and old.

For most of us, a home is one of the most significant purchases of a lifetime. The depreciation report may "out" potential special levies that have been long needed and not dealt with or just not known. In the past, strata owners often were not given appropriate time to plan for these sometimes onerous and long term additional payments.

The long term benefit of these depreciation reports will positively affect buyers and sellers. For the first time strata owners will have in their hands a tool that can peeks decades into the future. This will allow them to pace repairs and have a more well maintained asset to sell when the time comes.

In the short run, I anticipate that the report may lengthen the sales cycle on older stratas (i.e., the buying decision for purchasers). This will ultimately effect 2014 strata property sales. Buyers simply have more information to factor into their decision. I suspect, the winter market will somewhat mask the impact of the reports on strata sales. We will only know the true effect of the reports on the strata market from realtor feedback and by analyzing the data in the busier real estate market the spring will provide.

I am strongly in favour of the report however I do have some concerns with its implementation. I'll do a follow up blog(s) on two subjects concerning the report that buyers, sellers and realtors should be aware of:

  1. Stratas waiving the requirement for the report

  2. The Report Preparation