Depreciation Report or the lack of a Depreciation Report, should this affect your next home purchase of a strata?
December 2013 the B.C. government directive took effect requiring condominiums to prepare a depreciation report. The depreciation report gives buyers a detail perspective on long term expenses in regards to the building.
Strata corporations need to have a Depreciation Report every three years unless they hold an annual ¾ vote to waive the requirement. To learn more visit the Office of Housing and Construction Standards Depreciation Reports Guild 12
The purpose of a depreciation report is to give a standard to all strata & strata companies to follow. This will help purchasers of condos and mortgage lenders of condos have a clearer view on the health of the building and the common property associated to the building. Most buyers are focused on the finishes inside of the units but the true cost associated with the purchase is in the bones of the building and the depreciation report will one day help buyers & lenders make a more informed decision based on this report.
What affect if any would the purchase of a condo or strata unit without a depreciation report cause. You must remember that this report is there to bring all strata’s inline with a standard and this standard will not happen over night.
- Depreciation Reports are costly.
- Strata’s feel the building is in sound shape.
- Strata’s has knowledge that once the report is completed it may turn away potential purchasers.
- If the Depreciation Report is poor lenders may require a higher rate of interest to offset risk.
Many lenders I send in refinance application on strata units to ask for the depreciation report prior to even considering the request. The uncertainty between different strata’s buildings is so high due to possible maintenance issues that some lenders have reduced the maximum they will consider for such refinances. The lack of a depreciation report could put some home owners looking to refinance strata’s into the alternative mortgage market.
There are three main types of Alternative Lenders in BC:
- B-Lenders(they have less stringent Debt Servicing Requirements & can look at stated income up to 75% but in most cases with strata’s they will only consider 70%) Fees & higher than bank rates due apply.
- MIC or Mortgage Investment Corporations. There is hundreds of MIC’s lending in BC and will look at a variety of property types. Some MIC’s will go up to 75% LTV on Strata units. Mortgage Investment Corporations come with a higher than average interest rate but will fund solely on the value in the home not current income or credit challenges.
- Private Mortgage Lenders. These are Individuals or Syndicates investing in all types of Real-estate in BC. Individual & Syndicated lenders can look at a broad variety of mortgages and can sometimes lend more creatively even on strata units. Broker & Lender fees can apply and these do come with higher than average interest rates solely based on equity not credit or income.
When applying through an alternative lender for strata properties they usually want to review the following:
- 12 Months Strata
- AGM Annual General Meeting
- Depreciation Report (if available)
- Form B for the Building
With this information along with the application information Alternative lenders can make an educated decision how much they are comfortable lending on the property. These lenders take a more common sense approach unlike the banks.