Learn how to sell a home in a flood zone – a guide for real estate agents. Selling a house in a flood zone is more challenging than selling other properties because they are designated as ‘high risk’ by FEMA – which means the buyer will need to purchase a sometimes expensive flood insurance policy.
How To Sell A Home In A Flood Zone
Selling a home can be challenging all by itself – but when the property is in a high risk area for flooding – it can be even more difficult. There are some pretty unique challenges to selling a high-risk home, and as a real estate agent, you’re going to have to meet those challenges if you do not want it to stay on the market for months – or sell for a lot lower than it’s worth.
One of the considerations that you’ll have to face is that they buyer will need to buy a flood insurance policy. This can push up the cost of ownership higher than the buyers may have expected – or budgeted for. Let’s take a look at the regulations surrounding high-risk homes, the challenges and selling them as an agent and exactly how to sell a home in a flood zone – which can help make that sale easier.
What Is Flood Insurance?
The first thing to understand if you want to learn how to sell a home in a flood zone is what flood insurance actually is. Flood insurance protects homeowners from damage or destruction of a home due to flooding. In low risk areas, flood insurance is extremely inexpensive. If the flood risk is minimal, insurance companies are willing to take that risk for pretty low premiums.
But the higher the flood risk is; the higher the insurance premiums can go. In some cases, it is crazy expensive get flood insurance. So much that it can kill almost any offer that comes your way. That’s what you have to choose the high-risk homes that you sell carefully and do more research on them than you would with other types of homes.
How Do You Know If A Home Is In A Flood Zone?
As a real estate agent, you are probably pretty familiar with the flood areas in your part of the world – and may have even seen flooding before in some areas. But what if you are not sure? How do you know if a home is in a flood zone? The first step in discovering how to sell a home in a flood zone is to check the FEMA website.
You’ll type in the address of the home in question and look at the flood map in that area; if you are not able to type in the address because the home is too new, type in the nearest established address instead. Then look on the FEMA website and determine whether the flood map covers the home in question.
To discover if a property you are selling is in a flood zone use the: FEMA Flood Map Service Center: Search By Address
Flood Zone Risks
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The risks for buying a home in a flood zone depend upon the severity of the flooding. The flood zone maps from FEMA will show the zones and the risk for that zone as well as the boundaries. This map is known as the Flood Insurance Rate Map (FIRM). There is also the Base Flood Elevations (BFE) maps that show only the floodway and the boundaries using an approximation of data.
However, you will rarely find these as they have been the tool of the past and have mostly been replaced by more modern maps. These maps are the same tools that insurance will use to determine what sort of a premium to charge and what type of flood insurance you need.
About The National Flood Insurance Program (NFIP)
The National Flood Insurance Program (NFIP) was established in 1968. This program was created in response to the increasing number of private flood insurers that stopped providing coverage to homeowners because of the massive losses they suffered when those they insured filed claims. Flood damage can cost an insurance company a tremendous amount of money, and quite frankly, insurance companies that offered flood coverage didn’t want to sustain those losses.
In order to obtain a mortgage for a home located in an area that’s prone to flooding, flood insurance is mandatory. As such, when private insurers stopped writing coverage for flooding, the real estate market was severely impacted. Buyers, realtors, and lenders all suffered. To resolve the issue, the government stepped in and created a subsidized insurance option – the National Flood Insurance Program.
The NFIP is offered by the Federal Emergency Management Administration (FEMA). NFIP implemented the Write Your Own program in 1983, which made it possible for private insurance companies to offer flood insurance using the rates and regulations set forth by the NFIP. Today, some well-known insurance companies operate under NFIP’s Write Your Own program, including the Hartford and Travelers.
Definitions Of FEMA Flood Zone Designations
Realtors should be able to understand designated flood zones. A designated flood zone is an area where flooding is possible. However, there are several flood designations that are used to differentiate between the higher risk and lower risk flood zones. The FEMA map will have labels that show the severity of flood zone.
Moderate to Low Risk Areas
In communities that participate in the NFIP, flood insurance is available to all property owners and renters in these zones:
| Flood Zone | Description |
|---|---|
| B and X (shaded) | Area of moderate flood hazard, usually the area between the limits of the 100-year and 500-year floods. B Zones are also used to designate base floodplains of lesser hazards, such as areas protected by levees from 100-year flood, or shallow flooding areas with average depths of less than one foot or drainage areas less than 1 square mile. |
| C and X (unshaded) | Area of minimal flood hazard, usually depicted on FIRMs as above the 500-year flood level. Zone C may have ponding and local drainage problems that don’t warrant a detailed study or designation as base floodplain. Zone X is the area determined to be outside the 500-year flood and protected by levee from 100-year flood. |
High Risk Areas
In communities that participate in the NFIP, mandatory flood insurance purchase requirements apply to all of these zones:
| Flood Zone | Description |
|---|---|
| A | Areas with a 1% annual chance of flooding and a 26% chance of flooding over the life of a 30-year mortgage. Because detailed analyses are not performed for such areas; no depths or base flood elevations are shown within these zones. |
| AE | The base floodplain where base flood elevations are provided. AE Zones are now used on new format FIRMs instead of A1-A30 Zones. |
| A 1-30 | These are known as numbered A Zones (e.g., A7 or A14). This is the base floodplain where the FIRM shows a BFE (old format). |
| AH | Areas with a 1% annual chance of shallow flooding, usually in the form of a pond, with an average depth ranging from 1 to 3 feet. These areas have a 26% chance of flooding over the life of a 30-year mortgage. Base flood elevations derived from detailed analyses are shown at selected intervals within these zones. |
| AO | River or stream flood hazard areas, and areas with a 1% or greater chance of shallow flooding each year, usually in the form of sheet flow, with an average depth ranging from 1 to 3 feet. These areas have a 26% chance of flooding over the life of a 30-year mortgage. Average flood depths derived from detailed analyses are shown within these zones. |
| AR | Areas with a temporarily increased flood risk due to the building or restoration of a flood control system (such as a levee or a dam). Mandatory flood insurance purchase requirements will apply, but rates will not exceed the rates for unnumbered A zones if the structure is built or restored in compliance with Zone AR floodplain management regulations. |
| A99 | Areas with a 1% annual chance of flooding that will be protected by a Federal flood control system where construction has reached specified legal requirements. No depths or base flood elevations are shown within these zones. |
High Risk – Costal Areas
In communities that participate in the NFIP, mandatory flood insurance purchase requirements apply to all of these zones:
| Flood Zone | Description |
|---|---|
| V | Coastal areas with a 1% or greater chance of flooding and an additional hazard associated with storm waves. These areas have a 26% chance of flooding over the life of a 30-year mortgage. No base flood elevations are shown within these zones. |
| VE, V1-30 | Coastal areas with a 1% or greater chance of flooding and an additional hazard associated with storm waves. These areas have a 26% chance of flooding over the life of a 30-year mortgage. Base flood elevations derived from detailed analyses are shown at selected intervals within these zones. |
Undetermined Risk Areas
In communities that participate in the NFIP, mandatory flood insurance purchase requirements apply to all of these zones:
| Flood Zone | Description |
|---|---|
| D | Areas with possible but undetermined flood hazards. No flood hazard analysis has been conducted. Flood insurance rates are commensurate with the uncertainty of the flood risk. |
You should also be aware of the definition of a floodplain. A floodplain is an area that is at risk for flooding because it is near a river or stream. The soil of a floodplain is made up of sand, silt and leaves deposited during floods. Homes that are located in a floodplain are eligible for the purpose of federal flood insurance.
The Challenges Involved In Selling High Risk Homes
It is a lot more challenging to sell a property that is in a high risk area than it is to sell other types of homes. People are less willing to buy homes that may be destroyed by floods. That’s often because people have tens of thousands or hundreds of thousands of dollars invested as well as all of the personal belongings inside the home. So how to sell a home in a flood zone? With flood insurance you can often overcome this barrier.
If the home is designated as high risk by FEMA due to low elevation and risk of flooding, it usually means that FEMA believes there is at least a 25 percent chance that the property will be flooded during a 30 year mortgage term. Of course, homeowners can take steps to protect themselves to a certain extent, and the historical data can offer some useful information that may help you to sell the home, but it is still going to be challenging.
People are going to balk at buying a home in a flood area, they’re going to be concerned about the high price of flood insurance and they are going to be worried about the resell value of a home that is located in a high-risk area.
The Seller’s Responsibilities For High Risk Properties
How to sell a home in a flood zone? The seller has certain legal responsibilities when it comes to selling a high-risk home; the main legal responsibility that sellers have his full disclosure, and as a real estate agent that responsibility falls to you.
The information on flooding is available online anyway, and the smart homebuyer will check before they sign on the dotted line. However, it is still your responsibility to make sure that they know that the home is in a high-risk area and may be flooded.
You also must include the additional costs associated with flood insurance and have a listing price that will reflect that information.
Strategies For Selling High Risk Homes
There are some strategies involved in selling homes that are in a flood zone. Even with the challenges that you have, it is still very possible to sell a home at a fair price and make money. Here are some strategies that may help:
- If you don’t think that the home should be classified as high risk, you can challenge the property designation. You can make a formal appeal through FEMA to remove the designation.
- There is also the possibility of elevating the home so that it does not get classified as high risk because the elevation.
- You also can show buyers that the risk is low by looking at the historical data.
- Finally, make sure that you use every tool at your disposal to get flood insurance that doesn’t factor into the price of the home too much. There may be discounts or incentives that you can pursue that will save the buyer’s money on flood insurance.
Where To Find Flood Insurance
In order to find the right insurance agent, you want someone who is well experienced with flood insurance. You don’t want an insurance agent that is just going to look at the data and make the most conservative decision possible. You want someone that actually understands the risks and is willing to write a policy based upon reality and not data on a computer screen. An experienced broker is the best friend a real estate agent can have when it comes to selling properties in high risk flood zones.
How To Sell A Home In A Flood Zone (FEMA) – The Bottom Line
We hope this article on How To Sell A Home In A Flood Zone was informative. If you are interested in purchasing a home that is located in an area that is prone to flooding, speak to a reputable insurance company. They can guide you through the process of selecting the best flood insurance coverage.