Q: We’re hoping to buy a condo and there’s a building that we like the look of but seems there are a lot of units for sale there. Is this a red flag? How many vacant units is too many?
A: We’ve all seen it. You drive by a condo building and there is a glut of for-sale signs at the front, falling over each other to attract attention from passers-by. Some are flailing in the wind, others are on the ground getting dirtier by the minute. Is this a bad sign? Could the building be facing a huge assessment and owners/investors are trying to cash out while they can? It’s a question that is often asked, and can usually be reasonably addressed.
A good, safe rule of thumb to go by is a 10 per cent rule, that’s what I advise my clients. If the turnover in a building is substantially over 10 per cent, it’s a good idea to try and figure out why. It’s pretty natural for one out of every 10 units to turn over on a yearly basis, most people will move up or down the property ladder during a 10-year time frame. Investors will also cash out of their units, which skews the number even further towards turnover. Your agent will be able to find out the number of sales in the building that have gone through the real estate system over the last number of years, that’s a good starting point.
If more than 10 per cent of the units in a building are up for sale in any given year, it’s definitely important to figure out why. Are rentals allowed? If so, you can make an informed presumption that many of the units are owned by investors. Investors are generally more astute and ahead of the curve on market conditions, are they seeing something in the overall market that normal consumers may not?
Alternatively, is some major work to the building being discussed? Make sure to check the strata minutes in depth to see if there is something in the future plans. Rainscreening and other building envelope work is the big one to look out for. In our rainy climate, these kind of upgrades can be necessary, but very expensive. Another catalyst for people wanting out of a building is when important work is being avoided. Putting off important work generally leads to it being more expensive when it actually gets done.
Don’t panic if you see what seems like a lot of signs out front. A 300-suite building should really have five to eight suites for sale at any given time in a normal market. Emphasis on “normal market”. In Vancouver if a condo is on the market for more than two weeks it’s definitely important to wonder why. Agents in Vancouver don’t even have to put a sign up these days, let alone market a property. If the condo is in a good area, in a good building, and is not priced far above the current market conditions, it will sell in short order, likely with multiple offers. The suburbs are a different story, still above normal in terms of average time on market, but nowhere near as over the top as it is in the city.
These are always important questions to ask your agent, so using a buying agent is more important now than it may have ever been in the history of the Lower Mainland real estate market. Disclosure will be guaranteed if the agent does their job properly, so you can go into the transaction with confidence knowing you are buying into a decent building that will provide a sound investment.
