Potential Red Flags in status certificates!

In the world of real estate, most realtors do not want to lose a deal. However, there are some situations when a realtor must tell the client to walk away from a deal because it is in their best interests to do so. I have written some articles that deal with status certificates, a document that tells how well a condo is being managed. This article will deal with situations or red flags that will force a client to not buy the property. As always, when buying a condo, or townhouse, I cannot emphasize enough the importance of obtaining and reading the status certificate with the help of a real estate lawyer.

The following statements are from an actual status certificate of a real property. After having a lawyer review the status certificate, I was told by the lawyer to not buy the property. Therefore, I had to tell my client it is not a good idea to buy the property. The property is a 3-bedroom condo in a very old building. The condo is in the northwest corner of the city.

Here are some red flags found in a status certificate:

Any statements that say the condo corporation is in arbitration with a third party that may result in an undisclosed amount of damages being paid out. This may result in any damages being passed on to the unit holders in the form of an assessment or increased condo fees. One way to work around this, is to have your realtor call the condo board and see how much the damages might be.

Any statements that say a large capital expenditure or repair job is needed soon. Examples are a roofing replacement, window replacement, repairing a major leak for certain units. In the case of this status certificate, the corporation wanted to undertake a window replacement project costing $4,000,000 and the money will come out of the reserve fund. This may result in an increase in the condo fees to replenish the reserve fund. Of course, with older buildings, it is inevitable that major repairs are needed soon. The only way to find out how this will affect the condo fees is to have your realtor call the condo board.

Any statements that say the owners have made alterations to their condo unit without getting permission from the condo board. This is a huge red flag because all alterations must receive approval from the condo board before they are undertaken. This is because all alterations must comply with the condo board and the building codes. In the case of this property, another bedroom, and a laundry room in the hallway, were illegally added without consulting the condo board.

When I did some research on the property, I found out that this property was originally a 3-bedroom, 1- bathroom, 1- half bathroom unit. However, the unit was listed as a 4- bedroom unit. I did some further digging and found an old listing of the same property listed as a 3- bedroom unit. When I asked the listing agent if any changes were made to the condo unit, he said, “yes there were”. This may result in the condo board wanting to reverse whatever alterations were done. This can be very costly. This is why you should never buy a condo without looking at the status certificate because after you take possession, the previous owner’s problems are now yours. To be honest, this is a deal breaker. Any structural alterations done to a condo unit without the condo board’s permission, is grounds to not buying the condo – walk away.

As stated in my last article, a reserve fund study must be done every three years. Any statement saying a reserve fund study was not done within three years is a massive red flag because it is difficult to know if the reserve fund is adequate to cover future major expenses. To ensure that it is, a reserve fund study must be done regularly. This is another deal breaker as an assessment and/or condo fee increase will be put on the condo owners. It shows that the condo board is incompetent.

These statements are some examples of red flags typically found in a status certificate. Some of them are major deal breakers because there is no way of working with them and telling any client to go ahead and buy the property. There is just too much risk. As realtors, we must act within the best interests of the client. Real estate is a great investment if you buy the right property. However, it can be a costly mistake if you buy the wrong property.

Please be advised that this article is not a substitute for legal advice. Please have a qualified lawyer review the status certificate when buying a condo. On a side note, the 3- bedroom condo property I mentioned earlier did not sell. The listing was terminated.