In August of last year FEMA released revised flood maps. The result was that areas that had never had flood issues, not even in the worst times, are all of a sudden in flood zones and therefore have to be covered with flood insurance if sold with a mortgage.
Why, you might ask yourselves, well, my private opinion is that FEMA had so much to cover in Florida, Louisiana and wherever natural disasters hit in the past years, where people want to live in front of bodies of water or close by, get washed out and then REBUILD (or are allowed to rebuild which really should be impossible) that they needed to find new revenue. So they reassessed their potential risks and covered everybody who remotely might in the next 100-500 years be hit… And all of those poor people are paying for the ones who rebuild…and get washed out again…
Although flood insurance policies are issued by insurance companies, it is FEMA who sets the rates.
Another example of our government taking a risk from us only to bill us tenfold. It is beyond me why I can insure my house against total loss from a fire for $400 but would need to pay 10 times as much for flooding. Gone is gone, why would it cost more from water than from fire? Because water is a usually a disaster and then our Government declares itself responsible and pays. Since that has gotten out of control they are opening the risk for us all remotely anywhere near a body of water to enthusiastically participate…
At the end of the day, again, everybody is covering the ones that insist to live and rebuild in areas that are prone to these natural disasters. Since you cannot mortgage a house in a flood zone without flood insurance you are subject to mandate.
Have other explanations? I welcome your comments!
What can you as the broker do to at least be well prepared?
Go to the FEMA webpage (www.floodsmart.gov) and look whether your property is in a flood zone, if it is:
get an elevation certificate for the property, and that means for EVERY building that is fixed to the ground. Only removable aka personal property is exempt. So make sure your garden shed is movable, it will save you money!
- The FEMA webpage will give you a range of coverage, expect the worst
- Attempt to get a coverage bid from an insurance agency. This will not be easy, flood insurance is amazingly complicated and involved, but it is worth a try as you now know for sure what a buyer has to expect and can spell it out and disclose, avoiding future problems.
If the house is near a flood zone make sure the lender have their flood insurance department conduct a manual search, so that there are no unpleasant surprises.
Make sure the lender understands if there are any fixed outbuildings and that they might need coverage
existing policies are often transferable, check for that, they might have a lower rate than a a new one
What can you as a seller do? Even if you never had to pay FI and never had so much as a puddle in your driveway, if your property is in a newly designated flood zone, there is not much you can do and you have to PRICE ACCORDINGLY and DISCLOSE. If your buyer has to pay $4000 a year in FI it diminishes the value of your property significantly. And it is better to tell that upfront than let the deal tank later because the buyer finds out from the lender…
The average buyer stays in the new home 7 years before it is being sold again. With the example from above that is $28000 in FI. With no return on investment. And a buyer will have the same problem a seller has when they sell the property again. Therefore a seller has to be aware and willing to negotiate and offer the property at an acceptable price.
A really great property, well covered and acquired at a good price, is WORTH IT!
What can a buyer do? Calculate $ 200-400 per month (more or less depending on location) for the privilege. If you want to live at the river side and watch the majestic waters flow by you have to pay up for it.
Have an office or business at the property? then your premium might be deductible, check with your accountant.
There are later measure you might be able to take to elevate your building. A berm might help, too.
Overall we all will be asked to pay up for more and more that the giant risk pool called government thought it could cover but ultimately cannot.
Private insurer are assessing their risk and price accordingly, it is local coverage depending on local circumstances. FEMA is national and assesses risk nationally, to the disadvantage of the ones you are forced to participate.