Understanding Depreciation Report Estimates
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Understanding Depreciation Report Estimates
A. Depreciation Reports (as they’re known in BC) or Reserve Fund Studies (as they’re known in most other jurisdictions), are a useful tool that enable strata corporations to better plan for future repair and/or replacement, and maintenance, of common property and common assets.
From a buyer’s point of view, depreciation reports are a tool that can give them a better understanding of:
The likelihood that they may have to pay additional special levies, because the strata may not be saving enough in the Contingency Reserve Fund (CRF), to pay for future projects.
B. That being said, when looking at depreciation reports, it’s important to recognize that the cost estimates represent a “best guess” and are often considered “Class D Estimates (±50%)”. The report writer (often an engineer) comes on site and does a visual inspection of the strata’s common property and common assets, and they then do their best to predict:
- When the strata will have to repair and/or replace certain components.
- And how much this might cost.
What are Class D Estimates?
Many of the depreciation reports we review note that the estimates provided are Class D Estimates (±50%), which are preliminary estimates based on “little or no site information”. These estimates are typically considered to be +/- 50% in accuracy, with many variables influencing the final price. This means that if they estimate a project cost to be $10,000, it could actually range from $5,000 - $15,000.
It’s therefore important for buyers to recognize that their future “strata expenses” could be higher (or lower) than what is noted in a depreciation report, and they should plan accordingly.
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This information is shared from Condo Clear Services Inc.
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