By Michelle Ervin, March 2014 issue of CondoBusiness
The St. Lawrence Market condo should have sold in days. Instead, it took months.
“Beware NO-PET Rules”
By Michelle Ervin
The oversized (1,500-square foot) one-bedroom unit was an incredible renovated space in an older building with a rooftop swimming pool, as broker Erica Smith describes it. It was listed at $499,000 –good pricing at the time, she points out. There was plenty of foot traffic, but when agents put in offers, they would inevitably ask about pets. Once agents found out about the building’s no-pet rule, the offers would fall through.
Buyers will often have a cat or small dog, so no-pet rules can limit the pool of buyers for units in buildings with these bans, Smith says. Ultimately, the seller needed to get his equity out of the St. Lawrence Market condo to pay for costs that were kicking in at the new home he had purchased, so he sold for under asking.
Smith is the broker of record at Stomp Realty. There, she and fellow broker Joy Paterson work with both buyers and sellers, focusing on condos in Toronto’s downtown core.
When working with buyers, step one for the brokers is to establish a budget and preferred location. Next comes what an individual unit and its building has to offer. Unlike detached homes, curb appeal isn’t as important in condos, she says.
Gyms are the number-one must-have amenity for many buyers in the downtown core, Smith says. Other popular amenities that will attract attention in listings include pools and rooftop patios with barbecue areas and lounge furniture, Paterson adds.
More amenities typically means higher maintenance costs, and by extension higher condo fees. If a buyer is looking for a lot of amenities, Smith says, they will guide buyers to buildings with greater numbers of units, where those higher maintenance costs are spread across more owners.
Despite a recent move away from concierge or security service, in a bid by developers to lower maintenance fees, the brokers have found that these services continue to be important to many buyers – especially women, Paterson says.
The brokers tend to “shy away” from buildings that have known problems with leaks, Paterson says. However, they have seen motivated sellers successfully negotiate with buyers on such issues by, for example, including a dining table or window coverings in the deal, Smith points out. In the case of a special assessment, the seller might volunteer to pay it, Paterson adds.
“We make all of our offers conditional upon our lawyers looking at status certificates so our buyers don’t get into a situation they can’t get out of,” Smith says.
Lance Lehman, a real estate lawyer at Malo Pilley Lehman, reviews status certificates.
“One of the first things I always have to explain to clients is that they’re buying the unit that they’ve seen, but they’re also buying a share in the common elements,” he says. “So we’re concerned about not only that individual unit, but we’re concerned about the financial and physical health of the common elements, and we’re concerned with the risks that go along with the whole building.”
Clients tend to zero in on whether a condominium’s reserve funds are sufficient, Lehman finds, but that’s not exactly the right question – at least not for him answer. His role is to identify risks and explain them to his clients.
What the real estate lawyer wants to confirm is that a condominium corporation is well-managed, part of which is earmarking enough money for the future, he says. That means checking that the corporation is up to date on its reserve fund and following recommendations made by engineers – the experts who are qualified to assess, for example, when the roof will need to be replaced and how much it will cost.
Other considerations for Lehman include: Are common element fees likely to increase? Is the condominium facing a lawsuit? If the condominium is facing a lawsuit, will it be covered by insurance?
But, he says, “By the time people bring a status certificate to me, unless the status certificate is really problematic … the client is usually so committed to the purchase that, unless I really shoot it down, they’ll tend go ahead with it.”
Dan Barnabic, author of The Condo Bible for Canadians: Everything You Must Know Before and After Buying a Condo, urges buyers to take due diligence even further.By that he means not only checking the financial and physical health of the building via the status certificate, but also knocking on the doors of current owners (or catching them on their way into the building).
Questions Barnabic advises getting answers to include: Is the condo board functioning? Are owners satisfied with the property management company?
Unfortunately, he says, “not that great of a number” of buildings in Toronto would meet all of the criteria he sets out in his 10 commandments of condo buying. Notably, he discourages buyers from purchasing in buildings that are heavily tenanted.
“This is [an] absentee owner complex,” Barnabic says, “and as such, gives investors a red flag that this may not be as properly run a complex as it should [be] if all the owners are actually occupying the units.”
Renters don’t have a stake in the well-being of the building, he explains, which can lead to their treating the common elements in a way that results in unnecessary repairs. Unless heavily tenanted buildings are located in high-demand downtown cores, or touristy areas, such as Miami Beach, they can become stigmatized, he says.
Barnabic’s top tip for protecting the resale value of individual units is to pass a bylaw to limit rentals to 25 per cent of a building’s units. However, this type of bylaw has previously failed to be upheld when tested in the Ontario courts, so it may require legislative reform.
The consumer advocate proposes a number of reforms to the condo system that would contribute to protecting property value. Among his recommendations is compensating board directors for doing their job diligently.
“People get excited when they get elected to the board,” Barnabic says. “Over time, there are complaints, [and] the request to put more of your time into the running of the complex’s problems leads to disenchantment, lethargy, even disappointment, of the board members.”
A new Condominium Act is expected to be introduced at Queen’s Park this spring as the culmination of an 18-month review by the current Government of Ontario. Whether these proposed reforms, neither of which appeared in the Stage Two Solutions Report, could make it into the bill remains to be seen.
In the meantime, these challenges don’t preclude the good governance of a condominium corporation, including protecting its financial and physical health. As well, board directors can weigh in on how and what amenities and services ought to be maintained and provided. And, of course, they could look into the feasibility of repealing no-pet rules.