Real Estate Terms: Special Assessment
Not all dirty words are four letters long. “Special assessment” is a term that is a red flag for anyone initiated into the world of real estate. That’s not to say that if there is a special assessment going on that you shouldn’t buy a given property, but it is to say that there is a matter going on that you really need to pay attention to the details of in order to make an intelligent and informed decision regarding your finances.
Stratas have an annual budget and some savings called a contingency reserve fund (CRF) where they try to balance the income from strata fees with the costs of maintaining the strata complex. Like any building, big or small, many things need to be maintained on an ongoing basis in order to keep small bills and medium bills from becoming giant bills or for keeping the place from falling into terrible disrepair like this one. (Ok, that’s an extreme example but it just blows my mind even months later.)
Sometimes a fairly large item needs to be taken care of. Sometimes it happens as a surprise like we were seeing in the 90’s with the leaky condos and sometimes it was foreseeable but the CRF doesn’t have enough money to cover it. Maybe the strata council and the owners have decided that they would prefer to not dip into the CRF as that is their big financial safety net and decide it makes more sense to ask for funds from the strata unit owners instead. There are many possible reasons and situations for a special assessment but the bigger pattern I have seen is that there is a reasonably expensive maintenance item that needs to be addressed and as a strata is a communally own thing, the costs are shared according proportionately.
When a Buyer puts an offer on a strata property, there is typically a clause that gives them the right to review and approve a long list of strata docs before going ahead with the sale. There are many many pages to review but the biggest thing we are looking for is signs of special assessments (i.e. big sudden bills) either immediately or down the road. Alas, there is no perfect system or absolute guarantee for anything in life but proper review of strata documents has kept many Realtors and many clients out of sticky situations over the years. Worth noting is that it is standard practice for Realtors with such properties listed to tell you or your Realtor that there is a special assessment on the books before you start negotiating. No one wins by doing all the work required to bring an accepted offer together only to take it apart again. Plus a Realtor who is in the habit of not being up front with things like this in a timely manner will at very least have fewer of their cohorts showing their listing to Buyers and therefore take a hit business/reputation wise. In more extreme cases there is disciplinary action.
A special assessment can be an opportunity as well. Most Buyers shy away from anything that isn’t 100% done and towards the top end of their budget with the asking price and don’t have room for any extra costs. The result is that there is lower demand for a listing that has a special assessment on the books and thus a lower price. So if you have a little bit of flexibility with your finances and if you are willing to do your homework there is a reasonably good possibility of coming out ahead. This is a more esoteric path.