Red Flag Stigma

Business | November 22, 2010

“Red Flag Stigma.”  It’s a great term.  I just made it up…

Many condominiums come with red flags, and many condominiums have a certain stigma attached to them.

But if that bad feeling or stigma is based on a huge red flag, it’s very hard to shed the negative image of the building, even as time goes on…


“Beauty is in the eye of the beholder.”

“One man’s trash is another man’s treasure.”

There are a lot of sayings that might apply to the fact that certain people may love a particular building while others wouldn’t be caught dead in it.

That’s part of what fuels our open market.  Buyers have a choice, and it depends on their own tastes and preferences.

But sometimes that choice is shaped by external factors, such as red flags.

I wouldn’t say that “There are lots of students in that building” would qualify as a red flag.  I think that’s more to do with a person’s preference to not live in a dorm in CityPlace.

But anything to do with the condition of the building or the finances would qualify as a red flag in my books.

For example, we talked about co-operatives last week and a few of my readers were quick to point out that most co-ops require a larger downpayment, perhaps 30% or more.  This qualifies as a huge red flag.

I had a few clients living in 4K Spadina Avenue when there was some flooding.  This qualifies as a huge red flag.

Some red flags have to do with finances and some have to do with structural defects, and but more often than not, these issues share a common bond.

Any structural, engineering, plumbing, electrical or other issue affecting the building will ultimately affect the building’s finances.

You’d be hard pressed fo find somebody who will fix the problem for free, so it goes without saying that the cost will fall back on the residents.

If the roof is leaking and it’s going to cost $500,000 to fix, you’ll either be looking at a special assessment or a seriously depleted reserve fund that will likely increase maintenance fees.  Whether it’s a special assessment, or an increase in maintenance fees, both of these send up huge red flags to buyers.

Some red flags will go away over time, but others will linger for ever and the building will take on a certain stigma.

Nowhere can I find a better example than with a condominium which has been infested with termites.

The building in question is your typical 100-year-old loft space that contains features most condos don’t.  You’ve got post-and-beam made of beautiful, thick timber, and hardwood flooring that pre-dates the first World War.

But if I were a termite (and I’ve been called one before by both readers of this blog and ex-girlfriends…), I’d love nothing more than to sink my teeth into that 100-year-old wood.

I’d say it’s rather difficult to get termites in a two-year-old building, wouldn’t you?

When you’ve got nothing but glass, concrete, and drywall, I’m not so sure that termites have much to work with.

I think it’s fair to say that ANY 100-year-old building in Toronto is a potential candidate for termite infestation.  And whether there is a known history of termites in the building or not, all you have to do is look up at the ceiling and try and spot some holes:


The building I alluded to above has had termites before on several occasions.

It is very tough to sell a condo in this building, and I’ve seen one unit re-listed three times as three deals have fallen through because of the termites.

There is simply no hiding the termite problem.  It’s detailed in the Status Certificate, and ultimately I think it makes sense to disclose this if you’re a seller.  The buyers are going to find out anyways, so disclose it, discuss it, and hopefully the buyer will feel that the problem has been adequately addressed.

But is a termite problem ever actually “cured?”

If a beautiful red-brick building is painted grey right after the supposed “conclusion” of a massive termite infestation, is there any way you can chalk this up to coincidence?

This is the “red flag stigma” that I’m talking about.

That building will have a stigma attached to it for all of time, and I truly believe that resale prices of the units will suffer.

I’m not an expert on termites, but as a real estate professional, I would say that even if you’re told by the seller, the listing agent, the condo board, and a fumigation company that the problem is “cured,” there should still be cause for concern.

If it’s happened once, it can happen again.

And that 100-year-old wood isn’t going anywhere.  It’s what makes the building beautiful and unique, but it’s always going to be a target for the same termites that infested the building last week, last year, or last decade.

This red flag will be ever-present, in my mind, and it represents an enormous risk for a potential buyer.

Some red flags disappear as quickly as a poor call from an NFL referee who admits his mistake and plucks the flag off the turf.  If an A/C unit fails and the condo board has to pay $180,000 for a new one, the maintenance fees might increase but you know that there’s a brand new A/C unit and this problem has been taken care of.

There’s no stigma here – just a run-of-the-mill condominium issue.

But I don’t know if you can ever really get over termites in an old building filled with wood.

Would you ever hire a former bank robber to work the front desk at TD Canada Trust?  Oh sure – he’s probably paid his debt to society and there’s no doubt that he’s “reformed” and “rehabilitated,” but it’s still just begging for an eventual “I told you so.”

If that former bank robber doesn’t raise a red flag that will never go away, and if he doesn’t have a stigma attached for the rest of time, then I don’t know who or what will…

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  1. mike

    at 11:52 am

    Well the FBI did hire Frank Abagnale Jr…

    I know you love movie references

  2. Geoff

    at 2:42 pm

    Having lived in both a 100 year old conversion and a concrete and glass skybox, I’ll take my chances with the termites.

  3. steve

    at 6:40 pm

    termites are a common toronto blight and affect not only freehold housing stock and 100 year old warehouse conversions, but also high-rises. there are a number of condominiums, hospitals and commercial towers in the downtown core that also have termites. the issue stems from the wood forms used when pouring the concrete columns…in many instances the wood forms were never removed and carry up through the structural systems…so termites are showing up on high floors to the surprise of the occupants. one critical factor on termites…they require wood-soil contact and moisture, so once you eradicate these variables and do the requisite chemical barrier you can mitigate the stigma. cheers, s

  4. George

    at 11:52 pm

    My favourite red flag theory when searching for a condo was the number of pawn shops within the vicinity. One was a bad sign, but two or more was a definite stay away. Of course, if you’re looking for a buy-low investment, maybe that turns into a green flag.

  5. LC

    at 8:01 am

    Steve is correct. Lagging left behind in a termite zone is just a big invitation for termites to infest a high rise. The building will have to be treated annually, and I’ve seen that cost as high as $25K a year – added to your maintenance fees of course. The best part? Neither the city nor the developers have any responsibility to require treatment of lagging during construction. They just sweep it under the table, hoping no one will notice. Unlike building a custom home in the city, where the inspectors are all over you at every step. I’ve been through both scenarios and I couldn’t understand how the city could be so negligent with high rise construction.

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