Truth About Flood Zones
To Consider Flood Zones Or Not
Whenever I begin the home search process with my clients, I ask four basic questions.
What towns are you looking in?
What are your minimum specifications? (Bed count/ bath count/ square footage)
What is your maximum budget?
How do you feel about flood zones?
If for whatever reason one of those answers (usually our maximum budget) prevents us from finding a home, we need to adjust our home search strategy. We can expand our search to find a home with our desired specifications in our budget in a different location. We can redefine our minimum specifications, for example, we may go from a minimum of 4 bedrooms to 3 bedrooms and a finished basement. Or we can see if we can find more money via different loan options or borrowing from other sources.
Right now with such an intense seller’s market I have clients who want to remain in their current town because they don’t want their children to switch school systems, they need to upgrade and can’t reduce their specifications, and they either can’t or don’t feel comfortable borrowing additional money. At that point, we reevaluate our options such as waiting to purchase until we save more money or considering homes in flood zones.
In today’s market, more clients are considering homes in flood zones for the following reasons.
HOMES IN FLOOD ZONES ARE LESS EXPENSIVE.
On average homes located in flood zones sell for 15%-30% less than similar homes.
THERE IS LESS COMPETITION FOR HOMES IN FLOOD ZONES.
Many potential buyers do not want to consider homes in a flood zone thus Realtors automatically remove those properties from searches. This means that from the moment the house is listed fewer people are actually seeing it. Of the people who take a look, some will be scared about it being in a flood zone and decide to pass, further reducing the competition.
Less competition on a house doesn’t only mean you will save on the purchase price. Especially in a strong seller’s market, buyers are forced to offer great terms in order to win bidding wars. These include things such as waiving appraisal, coming in as-is contingent on structural and environmental inspection, etc. Less competition means you have a greater chance of getting your offer accepted without extending these terms.
The Process
Verify Flood Zone Determination
While there is always a chance that a property may be misrepresented on the MLS, we typically know if a home is in a flood zone or not prior to the showing. Even if the MLS information is inaccurate, I run a basic flood search through a program called RPR which is about 90% accurate when we make an offer. When we are under contract the title company will verify if the home is in a flood zone.
As Victor Ng, owner of Clear Skies Title Agency, explains, they send the search out to a 3rd party who runs a search against FEMA flood maps gives them a few pieces of information.
Is the house in a flood zone and is flood insurance required?
Even if the house itself is not in a flood zone and additional insurance is not required, does part of the property lie in a flood zone?
What is the flood zone designation?
Selecting Flood Insurance
Once we verify the flood zone designation, if flood insurance is required, we need to select flood insurance. Since we usually know if a house is in a flood zone before the showing, I suggest doing this PRIOR to making an offer.
As Chris Gonzalez, owner of Gonzalez & Company Insurance Agency, explains different policies can vary greatly in price. Here are some things to be aware of when pricing out flood insurance.
The most hazardous flood zones are labeled with the letter A, this means there is a 1% chance of the home flooding in any given year. Thus properties located in an A zone have the highest flood insurance rates.
Mortgage companies require flood insurance for homes in A flood zones.
Flood insurance is more expensive for homes with basements.
Get both an insurance quote from FEMA (available through multiple carriers all of who have the same rate) as well as private flood carriers as the rates can vary dramatically.
Home Inspection
We of course do a home inspection on all houses prior to purchase, not just one in flood zones. During the home inspection, we look at what mitigation systems the seller currently has in place and if they are adequate. Additionally, as Peter Calderon, owner of A+ Home Inspections, states he also looks at the exterior to give suggestions on how things such as landscaping can help reduce flooding. The goal is to take measures both inside and out to reduce the stress put on mitigation systems such as sump pumps and french drains during storms.
Peter also suggests if flood search comes back in a gray area, you can have it re-evaluated by Western Technology (the same company that does the flood searches for Clear Skies).
Conclusion
Buying in a flood zone is the right choice for some but it is not for everybody. There are a lot of factors that impact the decision. Yes, you will most likely spend less money on a house that is in a flood zone. This means you save on both the purchase price as well as the interest rates over the lifetime of your 30-year mortgage. However, you also need to calculate the cost of flood insurance and any improvements that might need to be made to the house to help further reduce flooding to make sure the savings is worth the inconvenience.