The Truth About Depreciation Reports

Jamie: Denny, we’re going to revisit an old topic we’ve covered before. This will be a bit of a throwback episode, but we’re bringing it up again because of recent experiences. The topic is depreciation reports. For those who don’t know, stratas are supposed to have a depreciation report done every three years. These reports are prepared by engineering firms that evaluate a building’s condition and lifespan, providing a plan to help the strata manage maintenance and reduce surprise expenses over time.

In theory, the intent is good. The reports give stratas an actionable plan, help with financial planning, and reduce the chances of sudden large assessments. But in practice, there are frustrations. Denny, have you ever seen a favourable depreciation report on an older building?

Denny: I’ve never seen a favourable depreciation report on any building, old or new. That said, I think depreciation reports are a fantastic tool because they give you an accurate history of a building’s maintenance. You can see when the roof was last replaced, when the plumbing was updated, and other details that used to be guesswork. Before depreciation reports existed, many buildings kept poor records, so buyers and agents had to rely on incomplete information.

Jamie: That’s true. Before these reports, if you were helping someone buy a 1970s or 1980s condo, you often had no clear idea when key components were last replaced. You’d ask listing agents to check with property managers, but it could take forever to get partial answers. Depreciation reports solved that by keeping detailed records, but they aren’t perfect.

Denny: Right. They’re helpful as a reference but not meant to be taken literally. They rarely reflect what actually happens. For example, an engineer might say that windows have a 30-year lifespan. But have you ever seen a 30-year-old building replace all its windows exactly at 30 years? Almost never. Usually, stratas replace a few each year as problems arise rather than all at once.

Jamie: Exactly. And that’s the issue. Engineers tend to be conservative because they’re protecting themselves legally. So, depreciation reports often recommend replacing things far sooner than necessary. I recently dealt with a condo in New Westminster where the report listed a full list of major projects — new siding, new balconies, new windows, new parkade membrane, and new water pipes — all within five years. In reality, most of those things didn’t need replacing. If you added up the costs, it would mean about $30,000 a year per unit for capital projects, which just isn’t realistic.

Denny: And now, stratas are legally required to do these reports every five years. It used to be every three years, but they could defer them with a vote. The new rules from 2023 make them mandatory. The problem is that these reports can easily scare buyers and lower property values because of the conservative estimates.

Jamie: Exactly. The engineering firms are paid to create a replacement schedule for everything — windows, pipes, siding, the works. And when you calculate the numbers, they can look massive. Buyers might take them at face value and assume every building is falling apart, even when it isn’t. A well-maintained building can inspect perfectly fine while having a very negative-looking depreciation report.

Denny: From a buyer’s standpoint, it’s important to know that these reports aren’t gospel. They’re guidelines. A strata doesn’t automatically follow every recommendation. Big-ticket items like parkade membranes and windows are always voted on. If 75% of owners don’t approve a major project, it doesn’t happen. And most owners won’t approve spending millions unless there’s an actual leak or major issue.

Jamie: That’s right. Engineers might list a parkade membrane replacement every 25 years, but in practice, stratas often patch problem areas and delay full replacement for another decade or two. These reports are useful for identifying potential future costs, but they don’t predict what will actually happen.

Denny: So, the takeaway for buyers is to read depreciation reports with a critical eye. Look at the context, not just the numbers. Talk to your realtor or even a contractor who can explain whether the work listed is actually necessary. And for realtors, don’t just forward a 100-page report to your client without understanding it yourself. If you don’t know what something means — like a $5 million parkade repair — ask someone experienced in strata real estate to help interpret it.

Jamie: That’s a good point. We’ve seen deals collapse over reports that sound scarier than they are. For example, a depreciation report might show a $1.5 million parkade membrane replacement. But if you calculate the unit entitlement, the cost per owner might only be $4,500. That’s manageable, but the big headline number can easily scare off buyers who don’t understand how it works.

Denny: Exactly. Buyers see “$1.5 million” and think they’ll be paying the whole thing, when in reality, they’re responsible for a fraction of it. Realtors need to help clients interpret these numbers and understand the difference between potential and actual expenses. And sellers shouldn’t be offended by low offers either. Buyers are nervous, and that’s part of the current market dynamic.

Jamie: Ultimately, depreciation reports have clear benefits. They provide transparency, help with long-term planning, and preserve records. But they also come with drawbacks, mainly because they’re conservative and often misunderstood. For large complexes, they’re essential; for smaller ones, they can be burdensome and misinterpreted. The key is to use them as a guide, not as a strict rulebook.

Denny: Exactly. They’re most valuable for giving historical data and helping strata councils plan maintenance. The downside is how they can affect resale value and cause unnecessary panic. As agents, we just need to help clients read them properly.

Jamie: That’s a good note to end on. Depreciation reports can be intimidating, but when you understand how they’re written and what they mean, they’re a useful tool for both buyers and sellers.