Understanding The Depreciation Report
There is great value in a Depreciation Report (DR) for the strata. I can see no negatives in it at all. However, some strata councils continue to vote against having a DR completed. Obviously they don’t want to have a to-do list which will result in either increasing the strata fees or having an assessment. Repairs and maintenance are a part of any property ownership. You don’t walk around the outside of your house blindfolded, you look to see what needs to be repaired and then you plan accordingly. I advise my buying clients (insist is a better word) to read the strata minutes, financials, Form B and the depreciation report before writing an offer. To obtain the Depreciation Report once you have an accepted offer, is like buying a second-hand car and then taking it for a test drive.
Will the Strata Depreciation Report warn me about future Assessments?
In my experience, buyers hone in on one aspect when looking at the Depreciation Report (DR): Does the strata corporation have enough money in the Contingency Reserve Fund (CRF) to complete the repairs/replacements identified in the DR?
If the answer is no, and there is scheduled maintenance for next year, then look at the amount of the cost of this repair/replacement. Depending on the cost, a buyer should expect an increase of monthly contributions to the CRF fund. This means that something has to be cut, or your strata fees will have to increase. If it is a big item then expect an assessment coming to the strata lot owners. Whomever owns the strata lot, at the time the assessment is approved by the council is responsible for paying the full assessment.
The Real Estate Board of Greater Vancouver (REBGV) has some great educational courses for its members. Last week a course entitled “Understanding Strata Depreciation Reports for Realtors” was held in Whistler. I have and added notes from the course and published excerpts from the manual.
My notes on the Depreciation Report:
- Another name for the Depreciation Report (DR) is a Reserve Fund Study (RFS). RFS is typically the name used in the line item of the balance sheet. This line item tells you how much money has already been set aside to address the DR.
- The DR is not a maintenance manual.
- Look at the 3 to 5 year financial model, no point looking at the 30 year plan, as it is should/will change.
- The bylaws of the strata should align with the DR, e.g. if the windows are a responsibility of the strata then the DR should have a section on the windows.
- Common property and limited common property should be addressed.
- It will be noted in the Form B if the strata has a DR.
- A draft of the DR is not as good as a final report. A draft can be changed. In addition, it can take a draft 6 months to become a qualified report. It is always interesting to see how long the report has been in draft format.
- When the DR was written several years ago, it is not necessarily a red flag. Look at the budget and see if the strata corporation is doing the work. Find out what the contributions are to the CRF, and what should the contributions be?
In summary, if you are unsure about reading a Depreciation Report, ask your real estate agent to help you understand the fundamentals of the report. If you are not working with an agent, please contact me and I will help you interpret the report. For more information on strata, please see the page on FAQ on buying Whistler real estate.
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