Flood Zone And Why They Matter In Missouri
By: Ian Golightly
If you’re thinking about moving or selling in a flood plain, you’re most likely wondering how it does affect you. There are many types of flood zones, and each one brings different challenges. On the other hand, if you are selling, you’ll have to attract the right buyer willing to take on the expenses and additional risks associated with your property.
Please take a deep breath. Many transactions across the US are accepted daily on properties that are in flood plains 😁. Statistically, FEMA noted that there are 13 million homeowners who live in a high-risk 100-year flood plain, which accounts for a 1% chance of flooding at any given time during any given year.
As a buyer or seller, you’ll want to do some research. You should know if the property is in a flood zone, or it got recently classified as a high-risk. Determining these two things will allow you to know what approach to take, such as property pricing, cost of insurance, and what disclosures should be made for the transaction. Understanding what approach needs to be made for the transaction to be executed, you’ll be in an excellent position to decide if the property is right for you if you are buying or how you can sell it to the right buyer.
Understanding Flood Zones:
If you are a homeowner, you should already know everything about your property, including what flood zone is designated for the property. If you are thinking about buying a property in a flood zone, you should understand what it means for you when the home is transferred to you.
Flood Zone Tiers:
- High-risk flood zone of SFHA (special flood hazard area) if your flood zone on FEMA’s map has the code starting with A or V. These areas are also referred to ‘100-year flood’ and ‘base flood’.
- Zone B or shaded zone X is a moderate flood risk (0.2% annual chance of flooding)
- Zone C or unshaded zone X is minimal chances of flooding and is considered low-risk.
NFIP: National Flood Insurance Program
If your property is classified in a high-risk flood plain or you are planning to buy property in a high-risk flood plain, there are solutions for you! No matter your situation, you’ll most likely be required to purchase a flood policy from your insurance company. There is a publicly subsidized program that is worth checking into that FEMA oversees. Roughly 5 million people across the US use the policy called the National Flood Insurance Program.
Ins-and-Outs When Buying and Selling With Flood Zone Properties:
If you are selling property in a flood zone, prepare yourself to get questions about flood insurance and what it means for buyers after the transaction. Depending on the flood zone that the property has been classified, flood insurance may be a requirement that buyers may be required to have.
Dealing With A Mortgage Company With A Flood Zone Property:
During a 30-year mortgage, you have at least a 1 in 4 chance of flooding in a high-risk zone. If you are going to use a federally insured or regulated lender, you must have a flood policy under federal law. On the other hand, lenders have the right to require insurance in low or moderate flood risk areas. It is in their discretion, so you’ll want to have that conversation with them when you are getting financing.
Speed The Real Estate Transaction With Elevation Certificate:
The home buyer may be required to present their lender and insurance company with an elevation certificate. The certificate indicates if a major flood were to occur, would the property be above the height of the estimated floodwaters or is the property is at risk. Insurance companies use this document to determine flood insurance premiums. To speed up the transaction process, you can order an elevation certificate because it will be one less thing the buyer has to do during the transaction process. Also, to be proactive, you can shop around for insurance quotes for prospective buyers, so it is no surprise.
Help Buyers With The Insurance Policy By Paying For It:
It’s not uncommon for sellers to pay for a one to two-year home warranty for the buyer(s) for unexpected issues after buying the property. As you already know, home warranties are entirely different from home insurance. As a seller, you have the right to offer to discount buyer’s flood insurance costs as an incentive to purchase your property. The offer can be adjusted by lowering the asking price during negotiations or as a credit during closing.
Flood Disclosures: Be Transparent:
Disclosure laws will vary from state to state. Most states will have their specific disclosure form(s) that sellers will use to indicate any known issues that could impact how safe is the property. As a rule of thumb, you should always disclose and never hide material facts about a property. I believe it’s better and respectful to be honest and disclose 💯.
Changing The Ask Price As A Strategy:
If you are selling property in a flood zone, you’ll want to keep in mind that your price strategy should be reflected in what type of flood zone the property is classified🤔🤩 .
Research identified home values that were low-end properties up to $284,921 in NYC after Hurricane Sandy, which decreased in value by 15.8% 😫 when newly placed in a flood zone (Hill, 2015).
Interestingly the impact was very minimal for properties that were on the higher end. However, every situation is different, and that’s why you should discuss with HELLO STL if you are planning to sell or buy properties in a flood zone.
It seems normal to put a single-family home for $300,000 that is not in a flood zone. But it makes it more enticing to price the home at $275,000, and disclosing your price is reflected in the cost of flood insurance. If you want to move house’s sale quicker, this is one strategy to do 👀😱.
Get A Home Report As A Seller Or Buyer:
I stumbled on this but this is very helpful! Homeowners are legally entitled to a free report from the Comprehensive Loss Underwriting Exchange (CLUE). The consumer report dates back up to 7 years of insurance history claims. You can call them at 866-312-8076 or request online (generated by LexisNexis)
If you are selling property and you never had to use a claim due to flooding, having a report to give to a potential buyer or allowing us to add the document in the MLS when listing your home can provide a potential buyer a peace of mind if they are a little hesitant.
Keep Insurance Premiums Down By Making Property Improvements:
You’ll want to talk to your insurance provider 📞 about this one, but most will agree that improvements to the property will help reduce costs. Just because you are in a flood zone doesn’t mean that it is impossible to reduce premium costs 💲💲. Here are a few ways to mitigate exposure to flooding:
- Relocate Utilities: When machinery aka utilities, is located below the base flood elevation, it can result in higher premiums. If you want to reduce the cost, you should consider elevating all machinery above the base flood evaluation to maximize savings and help reduce the risk of machinery losses.
- Elevate-Elevate-Elevate: The quickest way to reduce flood insurance costs is by elevating your home above base flood elevation. Studies show that a 1-foot increase above your community’s established flood elevation often results in a 30% decrease in annual premiums.
You Have Options When Selling:
Overall you have options when selling your property in a flood zone. Most prospective buyers represented by a buyers agent are most likely aware of the flood zone possibility in your area. As stated before, there are many transactions across the U.S. with properties in a flood zone, so don’t think it’s impossible to sell your property.
If you plan to sell your property, you should be represented by someone with particular expertise, so you should be represented by a sellers agent. HELLO STL will help market and promote other benefits that your property has and the neighborhood that the property is home to. Our strategy highlights the benefits to counter the drawbacks. To conclude, your property is more than just a flood zone piece of land.