So, I'm attending the Brampton Real Estate Board's Realtor Exposition today and I took a really interesting course today on multiple offers and how to manage them. And during the course, the instructor talked about the impact of multiple offers on condominium properties and how some Agreements of Purchase and Sale are being denied for completion by the lender's insurance i.e. CMHC.
A quick note: if you are putting less than 20% down on the purchase of a property (whether condominium or freehold), the mortgage must be insured - and these are usually insured either by CMHC (Canada Mortgage & Housing Corporation) or Genworth Financial. And yes, you pay for the insurance - this is done at the time of you getting the mortgage and the cost is usually added on to your mortgage.
But CMHC and Genworth Financial have cracked down over the last couple of years on extending insurance for properties that are part of some condominium corporations. Why, you ask? Simple, the condominium corporations are not being correctly managed by the Board of Directors (owners in the complex). The Board of Directors are owners just like you, and they receive professional guidance from the property manager and property management company. But sometimes, the Board of Directors doesn't listen to that professional advice...
When you have short-sighted owners who are on the Board of Directors and they either want to limit increases in condo fees or worse - reduce them! - these are the types of owners who, in my opinion, should not be elected to the Board. Most of the time, they want to reduce the condo fees for their own personal gains - either because they themselves aren't planning on living in the complex for a long time, or because they want to get re-elected to the Board.
Realistically, it makes sense to me that condominium fees should increase every year. Not by a lot - but by the expected amount that the Board of Directors (with the professional advice from the property management company) is expecting the costs of running the corporation to increase. That means, that if overall bills are expected to go up by 5%, then this is the minimum increase that should be charged to the owners. Simple, right?
Condo corporations also complete reserve fund studies - in depth studies every 3 years, as required by law. These studies identify long-term projects (like paving driveways, re-shingling roofs, etc) and the future expected costs of these long-term projects. It makes sense to me that future expected costs should be 'pro-rated' backwards to the current day. So for example, let's say that expectations are that the driveway and paved areas of the complex will need to be replaced in 10 years and that the future expected cost will be $500,000. This means that over the next 10 years leading up to the replacement time that $50,000 per year needs to be 'banked' towards this expense. And this $50,000 gets divided by the same percentage that each unit pays in monthly condo fees - so it's not a lot each month. It's the fairest way of banking money towards future projects.
So, if you're a condo owner or contemplating buying a condominium apartment or townhouse, then educate yourself. Understand that condo corporations are by nature, non-profit. Next, understand that a portion of your monthly fees are being 'banked' towards future projects - just like you should be saving up money to change your roof if you own a regular, detached house. And, if you're a condo owner then get involved! Attend the Annual General Meeting, read the budget and any proposals to rule changes, etc. Be a contributing member!
Condo townhouses or apartments are a great lifestyle choice - and they are a perfect option for care-free living when well run by responsible owners. I've highlighted a couple of things to look out for when contemplating the condo lifestyle. And, if you're already a condo owner and want to get involved, do so. You'll get a great education and life experience that you can use in the future.
If you'd like to know more about condominiums and the different options of owning a home, just give me a call. I'm ready when you are...