This article on things that raise a red flag during a strata search has been supplied by Lisa Rutland, MyBodyCorpReport.com.au.
Strata searching is not rocket science. Actually, it’s not any sort of science. Doing a strata search is about reading and anyone can do it.
When I learnt strata searching a very knowledgeable lady took me out into the field and walked me through the process. She then spent the next month sitting in the corner waiting for me to ask a question whilst I got on with the job.
It was the best way to learn because body corporate records tell their own tales.
At heart, all body corporates are communities, groups of people making decisions for and on their own behalf. The legislation requires those decisions to take certain formats and be recorded in certain ways and the end result is a fascinating history the life of a building and it’s owners.
Extracting and reporting on that story is what a strata search is all about.
How A Pre-purchase Strata Search Is Done
Doing a strata search is very easy. The steps are:
- Obtain written authority – body corporate records are private information and may only be viewed by authorised persons (a potential purchaser is definitely authorised)
- Make an appointment with the Secretary or Body Corporate Manager to view the records
- Attend the appointment and pay the fee
- Read through the records and make a note of anything out of the ordinary
It really is that simple.
Related article: What is a Strata Inspection Report?
So, why doesn’t everyone do their own strata search?
I spoke with another searcher recently and she estimated that around 30% of buyers get or do a strata search of the body corporate prior to purchasing.
That’s an awful lot of people buying without researching.
I’m not sure exactly why buyers don’t bother (if you have any insight please let me know) but one of the main factors seems to be lack of knowledge about the ability or advisability of investigating the community they’re about to invest in. The LookUpStrata website is intended to address this problem.
And then there’s the cost.
Buying a property is stressful and expensive and a strata search is just another cost.
Can I do my own strata search?
There is no reason that buyers can’t do searches themselves. OK, body corporate records are long and sometimes really involved, but that’s not a reason to avoid them. Flicking through the documents and reading minutes and correspondence may be time-consuming but it’s not difficult.
And, that’s exactly what we search agents do, only with the added wrinkle of writing a report.
Interpreting what it all means can be a much harder prospect, but there are plenty of resources, such as this website, that can help. And of course, your Solicitor is already involved in the conveyancing process.
Related article: NSW: 10 Steps to a DIY Strata Report
Body corporates are communal and every decision is meant to be transparent, consequently minutes of meetings are sent to all lot owners. Reading the minutes is how you as a lot owner will keep in touch with your investment anyway.
Why hire a search agent then?
It may seem there’s no reason to hire a search agent, but rest assured, we have lots of validity. Some benefits of appointing an agent are:
- Geography – purchasers don’t always buy where they live so an agent on the spot may simply be necessary
- Speed – search agents are quick and efficient
- Knowledge – a reputable search agent (like me) will have a thorough knowledge of body corporate processes and can query anything that stands out as … unusual
- Relationships – search agents build relationships with body corporate managers which means we’re more likely to get our questions answered promptly
- Convenience – some people just flat out don’t have the time to do a search themselves.
Whether you hire an agent or do it yourself getting a strata search is important. There are a lot of things that can go wrong with a body corporate and some are best to avoid completely if you can.
Equally, a unit is a property investment that requires a higher level of commitment than a house and the earlier you can get involved the better.
15 “Red Flags” In A Strata Search
I spend my days reading reports and trying to decipher what they mean, usually, so I can report that information to others in a strata property search.
As a Strata Searcher, you learn pretty early on that it’s best to be thorough in reporting. If you don’t you’ll end up going back to answer questions, or worse, chasing impossibly busy managers who seldom return calls.
I’ve learnt to identify “red flags” in body corporate records. To me, a red flag is something that tickles my sense that something isn’t quite right. It lets me know to investigate further and report more fully.
It’s also an indicator that there may be flow-on effects from this action.
Much of what I write about discusses identifying these issues and explaining what those flow-on effects might be.
It’s important to note that a red flag isn’t necessarily a reason not to buy or even a bargaining point for the purchaser. In most cases, it’s a simple point to check off in the strata search.
My Red Flags to Look for in a Strata Search
- A substantial increase in levies – if the levies are increasing substantially something has happened or is about to happen that requires more funds. What?
- A deficit in body corporate funds – deficits are reasonably rare and can be simply timing issues or symptoms of major financial problems. What’s causing the deficit?
- Substantial levies in arrears – when enough lot owners don’t pay their levies the onus for keeping the body corporate liquid falls on those who do pay. What’s the situation?
- The body corporate has Creditors – levies are usually issued and collected in advance of expenditure being accrued. Creditors are rare. Why are they not being paid?
- A special levy has been issued – expenditure is required outside of what has been budgeted for. Why is the special levy required? How large is it and when is it due? Is it likely to result in a substantial increase in levies?
- A building defect report – a report on a building problem is commissioned when the issue is complex and requires input from a building professional to determine problems and find a resolution. What are the symptoms?
- An Extraordinary General Meeting – EGM’s are called because the business to be voted on requires a resolution of all owners that cannot wait until the next Annual General Meeting. What is the issue(s) being decided?
- Issue of a Continuing Contravention Notice – the Committee has a problem with something that someone is doing within the scheme. Who and what?
- Appointing a solicitor to act on behalf of the body corporate – the body corporate is dealing with a legal matter that requires advice.
- Invitation to make a submission – the body corporate or another lot owner has made an application for adjudication with the Commissioner Body Corporate & Community Management. What is the dispute?
- The body corporate manager has changed – changes in management result from dissatisfaction with previous management. Why?
- A Committee member has been dismissed – dismissal of a committee member, or an entire committee, is very rare. What are the issues and will removing the member / committee resolve them?
- The scheme is not insured for the valuation amount – body corporates are required to have a current insurance valuation and must insure for at least that much. If they’re not, why not?
- An expired or no Sinking Fund Forecast (SFF) – body corporates are required to have an SFF which estimates works and costs at least 10 years into the future. If the report is not there or is expired, why?
- A late AGM – body corporates have time frames for AGM’s and a delay is meant to be approved by Commissioner. Most hold-ups happen because quotes are being obtained for works to be voted on. What works, and why?
More Information: NSW: Q&A Strata levy increases – how much and how often?
More Information: Is there enough money in our sinking fund?
More Information: NSW: Unpaid Levies…the New Rules!
More Information: NSW: Convening an Extraordinary General Meeting
All body corporates from the very small to the very large follow procedures set down by the legislation. It’s comforting in its way because it makes differences easier to spot.
And that’s what a strata property search is all about. Finding the differences and then finding out why they’re happening. My goal is always to give purchasers as much information as possible to answer the question “Will this body corporate be a good buy?”
Have a question or something to add to the article? Leave a comment below.