The Real Estate Institute of Canada – Greater Vancouver Chapter, recently released an independent study by the Crux Group. The survey’s intent was to find out how many strata corporations in British Columbia have completed Depreciation Reports and to highlight any trends and details associated with the report where available. Here are some of the findings:
Total Depreciation Reports
58% of all stratas in BC, or 6516 properties, have completed a Depreciation Report. The 10 largest firms in BC represent 64% of the total Depreciation Reports completed. All survey participants who contributed data remain anonymous however Normac is thrilled to discover that we are one of the top 5 companies in BC that have completed Depreciation Reports based on volume This is a tremendous accomplishment and one that we are very proud of.
Strata Reasons To Object Depreciation Reports
The top six reasons that stratas object to having a Depreciation Report completed include:
Cost – many have sticker shock over the price and do not understand the value that is provided by the report. (Reality – Not completing the Depreciation Report is actually more costly in the long term as tend not to be adequately funded for larger expenditures. It’s important for the strata to know where their assets stand in their life cycle to properly budget for the future.)
Utility – often strata corporations believe that the report will only show them things that they already know. (Reality – This is not the case as 3rd party, objective Building Science Experts are able to determine the specifics of a buildings needs and deficits.)
Regulatory Compliance – given the loose regulations around completing Depreciation Reports every three years, many strata corporations are opting to defer them.
Not Understanding How Reserve Funds Impact Property Value – most stratas believe that the availability of the Depreciation Report findings to future buyers will decrease their property value – this is because often current owners do not want to increase their reserve fund but rather have future owners fund problems through special assessments.
Report Accuracy – strata corporations feel that the forecasted budgets are too small yet the cost of repairs are over estimated. (Reality – Having completed hundreds of Depreciation Reports as well as thousands of Insurance Appraisals, Normac consultants are costings experts.)
Not Enough Input – some strata corporations prefer to be involved in finalizing the report and have input into a draft version before being provided with a final report. (Reality – The important here lays in finding a building science company that works with the strata councils and gives credit to proper maintenance when it is due.)
Having identified these objections, it is interesting to find that renewal rates for Depreciation Reports are increasing. Some of the reasons for this are:
Strata corporations who has Depreciation Reports completed later benefitted from a higher level of experience and service (as opposed to the early adopters).
As more Depreciation Reports are being completed, there is also more market pressure from buyers and sellers who are requesting them.
Strata corporations who have completed the reports are increasingly seeing the value in them.
The REIC report goes on to speculate that the renewal rate will continue to increase until it reaches 100%.
It is unfortunate to discover that many reserve funds are strikingly under funded for upcoming repairs, replacements and upgrades.
Almost half of all strata corporations have less than $2,000 per unit in their reserve fund. 15% have between $2,000 and $10,000 and 7% have more than $10,000 saved per unit.
None of the strata corporations have more than 50% of the recommended amount in their reserve fund, while over 50% of the stratas have less than 20% of the recommended funding suggested by service providers.
The findings conclude that while it seems that the perception of Depreciation Reports is not positive, those strata corporations who have completed them are seeing the value in them and working towards their recommendations and renewals.
It is also important to note that Normac has a dedicated team of Building Science Consultants who work hard to meet and exceed our clients’ expectations daily. We offer fee reductions to eligible clients, provide funding recommendations which are based on price indexes from Statistics Canada and are in line with industry standards, and we also provide draft versions of all reports for strata corporations to review and revise. Contact us for a complimentary quote and see why we are the be the best in the industry.
The full report can be found on the REIC Greater Vancouver Chapter website.
To get more information about Depreciation Reports, check out some of Normac’s blogs: