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Depreciation Report Ethical Anxiety Disorder (DREAD)

Symptoms:

A condition in which the owners, particularly of residential condo buildings, experience a number of fears and concerns related to the procurement of a depreciation report (more commonly referred to as a reserve study). 

The concerns are generally grouped into two classes:

       A.  External Ethical Concerns

  • The report will not be prepared by qualified persons.
  • The preparers of the report will be overzealous and will turn the report into a witch-hunt and will create problems that do not exist.
  • The report will be overly conservative and pessimistic in its outlook.
  • The report will indicate that there are large capital costs to be paid by the owners.
  • The report will recommend unnecessary over- maintenance of the building assets.
        B.  Internal Ethical Concerns
  • The report will reveal that the owners have not been doing their due diligence in terms of ongoing maintenance of the assets and, therefore, the report will embarrass the owners and/or the property manager.
  • The report will show that the owners have not historically been setting aside sufficient funds for capital renewal projects and therefore the owners are now heavily underfunded.
  • The report will negatively impact the resale value of the suites and therefore the marketability and saleability of the suites.


Diagnosis:

The disorder can easily be self diagnosed and does not require the help of any specialists. The process of determining whether the disorder exists is usually characterized by the following:

  • Delays in obtaining proposals for a report.
  • Attempts to seek an exemption to avoid having to procure a depreciation report.
  • Dismissal of all consultants as being biased and ultra conservative.
  • denial is “an assertion that something said, believed, alleged, etc., is false”.
  • cognitive dissonance is “A condition of conflict or anxiety resulting from inconsistency between one’s beliefs and one’s actions”.
  • confirmation bias is “a tendency for people to prefer information that confirms their preconceptions or hypotheses, independently of whether they are true”.


Prognosis: 

The likely outcome of the disorder is as follows:


Treatment:

The disorder can be treated with a three-month program of education and consulting services:

  • Education of the owners on the purpose and objectives of a depreciation report
  • Tendering of competitive bids from multiple companies so as to evaluate and find a qualified person.
  • Hiring of a professional team that is impartial and provides services with a view to the best interests of the building
  • Prepare a defensible report that is based on realistic forecasts of probability distributions
Most owners to not succumb to the disorder and it passes after a few meetings and discussions that help the owners make an informed decision about the responsible stewardship of their assets.


See also:


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