Recently, the Victoria Real Estate Board hosted a “Strata Insurance Panel Update” featuring a real estate lawyer, a property manager, and an insurance broker. The premise was to give an update on experienced advice and information on what is happening in the insurance industry, specifically in the strata world right now.
It contained some seriously interesting information, but the big take-away here was what to look for when you’re trying to purchase a new home. Because let’s face it, it can be a scary step on a good day, without all of this uncertainty surrounding insurance. Strata insurance has the power to create a cascading effect, from having previously-approved mortgage financing pulled or a buyer’s inability to get financing for a specific building.
One thing you might not realize is why the mortgage industry is so interested in a strata’s insurance. If a building finds itself with a massive insurance deductible and opts to turn to a special levy to fund the payment, then that special levy is registered on individual titles as the top priority. It will supersede any mortgage registered on title.
You can see why mortgage companies are a bit antsy. They want to know that their collateral in the transaction (the condo) is secure if the buyer defaults on his payment. If a special levy is registered and the buyer defaults, then when the condo does sell in foreclosure, the bank will have to pay out the special levy and then take what is left of its money. It’s possible that the bank would lose money on the sale because of that payout.
On the flip side, if a buyer can’t get insurance on their condo or the condo building can’t get building insurance prior to the mortgage funding, then the mortgage company won’t fund. It simply will not give out the money without proof of insurance, ultimately leaving the buyer in a dire situation.
So, what can you do to continue moving forward in the Victoria condo market? Here are few things.
- Work with somebody who understands the intricacies of strata properties and all of the documents that go along with that
- Pay attention to the three things that will dictate a strata’s ability to get insurance: healthy reserve fund and strata fees; up-to-date maintenance or structured plan to get there; and no mention of the dreaded “water” in strata minutes
- Work with a condo-specific insurance broker who can help build the right insurance policy to protect you the best
If you’re already an owner of a condo or townhouse, here are three tips to help you help your strata keep its costs down:
- Know where your water shut-off valve is
- If you have an individual hot water tank, then know when it was last replaced and if it’s your responsibility as the owner or if your strata is responsible. (The strata’s bylaws will make mention of this.)
- Don’t make stupid claims. Like you wouldn’t make a $200 claim on your car insurance, think long and hard before making a claim on your home insurance. Obviously if it is something warranted, then do it! But when little claims stack up, it can reflect poorly on the strata as a whole when it comes to renew the building insurance.
Strata insurance remains a bit ambiguous and uncertain, especially in terms of the spectrum of strata properties. This is why it’s even more important than ever to work with somebody who knows the condo market, what to look for, and can explain things to go in a straightforward, no-bull kind of way. You need to feel comfortable and confident in your agent, whether you’re buying or selling.
Have questions? Let us know. We’re always happy to talk.
Until next time.
Kaley + The Haro Group