As anyone knows, buying real estate can be stressful. After weeks or maybe even months of looking, you find the perfect place to call home. You put an offer in and wait to see if the offer is agreed to by the seller or if the seller provides a counteroffer. Hopefully, you reach an agreement with the seller to purchase. You are excited but there are conditions which have to be meet before the sale is final. Typically, the sale conditions are as follows:
However, if you are buying a condominium, there is one other item on the list of conditions. It is a review of the condominium or strata documents (link to condo documents we review page).
A document review is similar to a home inspection prior to buying. When you purchase a condominium, it is more different than purchasing a house because you are also buying into the strata/condominium corporation and you will be responsible for any existing responsibilities including the financial obligations of that strata/condominium corporation. It is like becoming a shareholder in a business.
One of our clients was looking to purchase a condominium in July 2019 and asked us to review the condo documents. Upon review of the condo documents, we informed our client that the depreciation report and financials indicated that Continency Reserve Fund was not adequately funded for this strata corporation. As well, the strata fee was increasing by $10/month ($120/year) and there were two special levies imposed for fence replacement and the exterior painting of the building. A special levy is money collected from all strata owners for common expenses and a specific purpose. In this example, our client’s portion charged to the unit he was looking to purchase was $1,825 for the fence replacement and $1,170 for the exterior painting. This was a total of $2,995, which our client would have to pay upon purchasing the condo unit as the special levy was required to be paid after taking possession. Our client then had to make the decision whether to proceed with the purchase of the condo unit despite the increased strata fees and special levies and a not well funded contingency reserve fund or look for another condo unit. This client chose to look for another condo and three months later our client found one in a strata corporation with a healthy contingency reserve fund, no special levies and it was a better maintained building.
This next example shows a case of buyer remorse despite having a third-party review of the strata documents. In 2015, a client asked us to review the strata documents of a unit she was wanting to purchase. She really wanted this unit as it was in the building she always wanted to live in but she wanted an independent third party review as she did have a concern about a structural issue that she read about in the council minutes. Our company reviewed all of the strata documents provided and there was a structural issue which needed to be repaired immediately. The initial special
levy assigned to the unit she was going to purchase was $5,000. The contingency reserve fund was well funded and healthy for this type of corporation but based on our years of experience, our company had concerns that the repair of the structural issue was going to cost more than the estimates provided and could deplete the CRF. The home inspector also raised concerns about this structural issue. Despite these warnings, our client proceeded to purchase the unit as she felt the extra $5,000 for the special levy was worth it to be in her dream condo. Fast forward to 2020 and her dream condo is not so dreamy anymore. The structural issue and the lawsuit which followed with the builder, has depleted the once healthy contingency reserve fund to almost zero. The extra $5,000 our client thought she would pay for her share of the special levy has turned into $40,000 over the past 5 years. She recently called and said, “I wish I would have listened to your professional advice.”
Our qualified third-party document review company takes the emotion out of purchasing a condo. We provide an unbiased report highlighting all of the pros and cons of the particular condominium you are looking to purchase. We will let you know if there are any special levies or other financial obligations that you will be responsible for. We will highlight the bylaws/rules you should be aware and the financial penalties for not following them if applicable. We will analyze and decode the financial statements, contingency reserve fund and depreciation report/reserve fund study for you. The report will be written in an easy to understand format and will be provided to you via e-mail in a PDF format.