Depreciation Reports Demystified

There has been so much talk about depreciation reports lately, I thought I'd try my hand at unravelling some of the myths and fears of buyers faced with the task of understanding the implications of these reports.

The depreciation report will include a description and estimated life expectancy over 30 years of items that are part of common property, common assets, limited common property or parts of the strata lot that the corporation is responsible for. This may include, but is not limited to:

  • the building's structure;
  • the exterior of the building, including the roof, doors, windows and skylights;
  • the systems of the building, including the plumbing, heating, electrical, fire protection and security;
  • common facilities and amenities of the property;
  • the building's parking facilities and roads;
  • the building's utilities;
  • landscaping;
  • the building's interior finishes, including furnishings and floor coverings;
  • green building components, and
  • balconies and patios.

      The Report must contain:

  • - A physical inventory of the common property and assets.
  • - Anticipated maintenance, repair and replacement costs for common expenses projected over 
  •   30 years.
  •  -A financial forecasting section with at least 3 cash flow funding models.
  • Depreciation Reports provide useful information to Strata Lot Owners, prospective purchasers, mortgage providers, and insurance companies.
  • What does this mean for Buyers?
  • Buyers can regard the report as a forecasting tool. Allowing them a glimpse into the future of the building they hope to purchase a home in.
  • Depending on the cash flow model adopted by the strata corporation, this could mean all future expenses (as outlined in the report) would be funded by contributions made monthly through the owners maintenance fees, or perhaps half of the future amount through maintenance fees and the rest through assessments at the time the necessary work is done, or finally, no contributions monthly with all of the work to be funded by special levies at the time the work is deemed necessary.
  • What does this mean for Sellers?
  • Commonly called "Reserve Fund Studies" in other jurisdictions, depreciation reports will allow current owners and sellers to fully disclose the physical and financial condition of their property.
  • This will allow future (and current) owners to properly plan their finances should the Strata they're buying into not be fully funding the future expenses.
  • What does this mean for Lenders?
  • Consider the lender's position when presented with a first time buyer's mortgage application on a building that isn't fully funded through the monthly maintenance fees. They will be able to forecast the ability of the buyer to shoulder the costs of future assessments with the help of the report.
  • Now consider the lender's position when presented with the same first time buyer's application for a mortgage on a fully funded building. This scenario allows the lender to calculate all monthly costs for the buyer and their ability to pay, and therefore qualify for the mortgage they need.
  • Personally, I'm glad we'll finally have a better picture of the overall health of the buildings we Realtors are presenting for sale. As a forecasting tool, depreciation reports will be extremely valuable, but certainly not the last word.
  • For more information on depreciation reports, click here.
  • For information on all Vancouver Real Estate or to contact me, click here.

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