What is a depreciation report?
A depreciation report is a formal, standardized report created by an engineering firm to evaluate older buildings in the greater Vancouver area. It was created in 2013 as a proactive way to increase the amount of information available for strata to plan and pay for the repair, replacement, and renewal of common property and assets (roof, windows, elevator, etc.) over the next 30 years. This report is also used by prospective buyers to reduce the chances of running into unexpected and expensive issues after the deal goes through.
- Gives detailed information on previous renovations – before this report, it would be difficult to know when the roof was replaced, plumbing was done, etc.
- If the seller was living in the building for a short amount of time, the report will offer a more detailed history that they may not be aware of
- It is a long document that is not meant to be taken word for word; the percentage of people who go through the full document and understand how to read it is quite low
- Not buyer-friendly – jeopardized deals when it was first created and could still be doing this today due to lack of understanding
- The reports tend to err on the conservative side – making estimates on all possible renovations within a 30-year span; the strata does not have to follow recommendations if upgrades are not appropriate at that time
- Can be overwhelming and look very negative when listing all possible upkeep projects on older buildings
A depreciation report can be a helpful tool, however, how it is communicated and used can play a huge factor in its effectiveness. Before presenting any report to your client, ensure that you understand what it means. Additionally, keep in mind that each tenant is only responsible for a certain percentage of the total cost depending on their unit entitlement, making a large renovation cost more manageable.
Remember that sizeable updates will be voted on by the strata and may not necessarily happen when they are predicted to if deemed unnecessary. Professional assessments and quotes from different experts in that field will be collected to ensure that the proper work is done at the best cost.
In the end, the positives of a depreciation report outweigh the negatives. Always take into consideration that the property’s land may be worth more than the actual structure, and it could still be a good deal even if the depreciation report is pessimistic.
Listen to The Garbutt+Dumas Real Estate Podcast: The Ins and Outs of a Depreciation Report episode to listen as James and Denny offer more insight into how best to use this information.
Do you have questions regarding older buildings, understanding how to read reports, and knowing if it’s a solid real estate deal? We would love to hear from you – contact us and we can help you with some of the specifics.