Almost all of my blog posts are inspired by recent transactions or activities related to my involvement in real estate, and this one is no exception. I bought my first condo in 1992 - back then condo sales made up about 5% of the residential market in Edmonton. Today about 1/3 of the market is made up of condo sales. With that growth comes a myriad of issues, including the dreaded word “assessment.”
Assessments are feared by buyers and REALTORS® alike, and have become common place in our market. In fact, you may have a tough time finding a good condo in Edmonton that has not had, or will not have, an assessment. Here are a few quick facts about assessments (keep in mind that in March it is anticipated the long overdue overhaul of the Condo Act should become a reality, which will change some of these answers).
Q. What is an assessment?
A. In short, it is where the owners or executive management of the association determine that the condo corporation needs a cash injection. It could be due to work that needs to be done, or it could be that the reserve fund is not sufficient to cover upcoming operating expenses and future obligations.
Q. Does an assessment mean the condo association has been poorly managed?
A. On the contrary a good deal of assessments are made proactively to ward off significant future pain and deterioration in value. The devil is really in the details.
Q. Does the size of the assessment make a difference?
A. Size certainly does matter. The larger the assessment (generally) the larger the amount of work that is required. Sometimes this work is done over a period of time, and therefore the total cost of the assessment isn’t always known. Often this type of assessment is sold to the owners by saying “that it will improve the value of the property." In most cases this is true, but a lot has to do with the management of the project and money. I have been involved in projects where the concept of the scope of work of the assessment was fantastic and would definitely add value to the property once it's done. However, if the project is not managed properly it can lead to further assessments.
Q. If the value is only going to improve why would people be nervous about buying a condo with an assessment?
A. Fear of the unknown. In my experience buyers fear that unknown quotient - how it will turn out, will there be additional assessments, will the project well be well managed? They are also comparing the properties that they are looking at now in their current state, and it is often hard for people to conceptualize the work that needs to be done. Again this depends on the size of the assessment. If the assessment is only $1500.00 and the seller is willing to pickup the tab it is a lot more palatable than something in the range of $20,000. Even if the larger sum will be due and payable in installments. It is because of uncertainty that buyers will stay away. The more detailed the plan, the lower the uncertainty and the more likely the buyer will consider the property.
Q. How do I sell my property if I have had a large assessment?
A. Information is important:
- Having as much documentation about the “why, how and when” will certainly be helpful.
- Details about the scope of the work will help buyers understand what inconveniences they may have to endure.
- Financial details of when the money will be due. Will it be lump sum instalments or added to the existing condo fees?
- Discuss with your REALTOR® potential strategies and how they will market this information to the public and other REALTORS®. (If you don’t have a REALTOR® talk to one of our Liv condo specialists).