September 22, 2023


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Faulkner: Tips for navigating a condo purchase

A thorough review of condo documents and a comparison with the actual property and maintenance plans is key when considering a purchase.

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When purchasing a condo, knowing what you are purchasing is important. A condo purchase is an ownership interest in all the condominium property with exclusive use of a unit.

Each condo in Alberta has a total of 10,000 unit factors. An owner’s unit factors are based on the relative square footage of their unit. The bigger the unit, the larger the condo fee.

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The condo plan will outline common property such as a patio, balcony and the adjacent yard, which is exclusive use for the owner of that particular unit. We will often say to our clients that they are always responsible for what is between “paint to paint” of the unit they purchase.

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Every owner is partially responsible for all the common property, including both the development and the land. Condo fees go towards both operating expenses and the reserve fund. Therefore, it is important to know the condition of not just the unit one wants to purchase but all of the common property, as well.

That means it is important to review all the condo documents. A buyer could do that themselves, and/or they could hire a professional who specializes in reviewing condo corporations’ structural and financial health.

We always recommend that the buyer hire a home inspector willing to inspect all the common property where practical, not just the unit. That common property would include the envelope (siding), foundation, roof, fencing, parking lot and other shared spaces on the entire property.

Then compare the inspector’s observations with what is recorded in the condo documents. Are there any significant defects, and are they recorded? If they are recorded, a buyer should find these defects mentioned in the board meeting minutes of the last 12 to 24 months or as upcoming expenses in the reserve fund study.

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The next question is, are these defects/replacements already budgeted for, and are the monies already available, or will the corporation need to issue an assessment to every owner?

In Alberta, any assessments or notices of assessments received up to and including possession day are typically paid by the seller. After possession, any new assessments made or announced are to be paid by the buyer, the new owner.

One of my concerns with condo management is whether the condo board is proactively dealing with defects or deferring maintenance to keep condo fees low. If it’s the latter, then there is a possibility that the board’s effort to save money could backfire. There could be a much higher future cost to deferred maintenance. Gaylene Pashko, a condo document reviewer from KDM Management, says low condo fees can also be red flags.

Reviewing condo documents can be daunting for some. Finding and using a qualified professional to review the documents can be of great benefit.

If a buyer hires a professional, we still recommend that they review all the documents. Bylaws are imperative for a buyer to review. The bylaws will list all the rules and restrictions related to visitors, parking, short-term rentals, pets, age, smoking, noise, insurance, etc. The bylaws may also restrict when, how, what and by whom any renovations or improvements can be made to your unit.

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It is important to review the reserve fund study and compare it to the actual reserve fund to ensure that maintenance and repairs are on track and budgeted for properly.

Worthy of note, many jurisdictions may require asbestos testing on properties built up to 1990 before making any repairs or changes to the walls, ceiling and flooring. This testing and remediation can easily triple the repair costs. In Alberta, asbestos regulations are set by Occupational Health and Safety.

A significant issue with asbestos is water escapes. Older plumbing or building envelopes can be problematic. If there are many rentals in the condo corporation, the tenants may not know or care much about what is safe to flush down the drain.

Insurers like CMHC also read the condo documents. If they see major issues, they might not insure any future mortgages. That means that a buyer would have to have a minimum down payment of 20 per cent of the purchase price. When this happens, it almost always affects value negatively, as up to 80 per cent of the buyers don’t have a 20 per cent down payment.

Leslie Sorvisto, from KDM Management, says that those who pay a 20 per cent down payment are sometimes more invested in looking after their property.

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Gaylene and Leslie from KDM say that special levies are typical where condominiums have experienced unexpected repairs or may have enjoyed a lower condo fee for several years.

Condos can offer buyers affordability, ease of living and lifestyle flexibility. Owning a condo can eliminate exterior maintenance that the buyers have to do themselves.

Doing good research will never eliminate risk, but it can mitigate some of the risks of unexpected assessments.

We recommend that it is best to find a realtor well-experienced in condominium sales whenever making a purchase of any condo.

Dennis Faulkner works as a realtor at Maxwell Challenge and holds a B.A. degree with a major in macroeconomics. He can be contacted to answer your real estate questions at [email protected].

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