Message from Jim
Below are 4 ways to improve perception and involvement in the National Flood Insurance Program:
1) Be aware that Flood Insurance Rate Map (FIRM) accuracy is limited due to natural processes and development in the watershed. Use the maps as a guide to make more informed decisions.
We receive feedback from many homeowners and stakeholders as to the weaknesses of the flood maps and how the National Flood Insurance Program can be improved by simply making the maps more accurate. As a land surveyor, I do agree more accurate maps will help the program evaluate perceived risk more appropriately and implement regulation more efficiently, but this strategy should never be accepted as the end-all solution. Storm size, development since the Effective Date of the flood map, and erosion, are just a few of the many reasons why making a perfect flood map is not a practical expectation. Even if they were deemed perfect at the Effective Date, they would slowly become imperfect from the many changes occurring in a watershed. Map revisions are expensive and slow to occur, so mitigation strategies and community preparedness will always be acceptable strategies to improve flood program perception.
2) Understand the difference between actual and perceived flood risk when applying mitigation strategies. With proper planning, many program obstacles can be eliminated.
I have often emphasized the importance of making sure the separation of actual risk and perceived risk exists. As an example, we have a client who has a vacant parcel of land not currently in a Special Flood Hazard Area (SFHA), but the parcel is shown in the SFHA per the preliminary Digital Flood Insurance Rate Map (DFIRM) which should become effective in 2018. To help our client protect the value of his property and increase personal safety, we will use a multifaceted approach: upon completion of a topographic survey and with the aid of a civil engineer, we will create volume computations and use properly compacted fill to elevate the portion of the site where he desires to build his home above the proposed Base Flood Elevation (BFE). Once the DFIRM becomes effective, we will use the appropriate Letter Of Map Change process to remove that portion of the parcel with a metes and bounds description.
So what does this accomplish? Actual risk for the new home will be reduced since it will be elevated above the BFE, and program perceived risk will also be reduced since flood insurance will probably not be required. As always, we would recommend the purchase of a non-mandatory Preferred Risk Policy during and after construction since an actual storm can exceed a flood map line or an engineer-calculated BFE, and make sure it is understood that the preliminary flood map may change before it becomes effective. Being pro-active is a much better option than doing nothing.
3) Learn about the purpose of the mandatory flood insurance requirement in the lending process. Know what to expect and what options are available.
Unfortunately, I also hear from homeowners when expensive and unexpected mandatory flood insurance is placed on a home because a lender’s flood zone determination placed it in a Special Flood Hazard Area. Please remember, much of the money on the line in case of mortgage default is not the homeowner’s, but is the lender's or investor’s. They have the right to protect their investment! The program does not require mandatory flood insurance for a cash deal or a private mortgage because the federal government is not insuring the money involved.
Another component of this process is timing; why is going into the flood zone so stressful? Of course, it is the added mandatory insurance premium and the fear of how flood will impact value, but is this not also compounded by the timing of the news? The notice of mandatory flood insurance often surfaces later in the process, around step 8 or 9 of a real estate transaction, which creates a foul taste for all involved since qualifying for the loan may no longer be possible, or the buyer’s options may become very limited. Our recommendation: bring it up earlier in the transaction through the Seller’s Property Disclosure.
4) Consider how addressing flood appropriately within real estate disclosure could provide opportunities to protect clients, reduce risk, and assess value realistically.
The Realtor is often the first “boots in the mud” in a real estate transaction, and clients rely on them to tell them what they need to know. We realize there is a fear of increased liability for Realtors in discussing flood hazard information due to lack of education/experience with flood, but I think it would be just the opposite if Disclosure is used as a guide to create consistency in property evaluation. This process should be no different than if the electrical or plumbing is an issue. Identify the potential issue, explore the options with your client, then seek guidance or service from a qualified professional. If a fear exists that flood may ruin a deal, isn’t “the sooner the better” for all involved?
Disclosure should require more in-depth evaluation of flood hazards and can provide an excellent opportunity to educate all parties involved. One state's Seller's Property Disclosure document asks, "Do you have an elevation certificate? If yes, please attach a copy." Think about the dialogue this would create between a real estate agent and their client. This is a great opportunity to improve client representation, reduce potential liability, and create a more accurate value on the real estate. Each state should strongly consider strengthening flood hazard disclosure since most, if not all, professions promise to follow the canon of public safety. This does not mean a reduction in effort and obligation behind the Latin term “Caveat Emptor” should occur. Each buyer and representative must accept responsibility to perform appropriate due diligence, but an improved Disclosure will greatly enhance this process for the buyer side.
I do not believe real estate value will be impacted as much as many may believe if flood is properly disclosed at the beginning of a real estate transaction. In my opinion, there is nothing else on a Seller’s Disclosure that could impact value more than flood when overlooked at transaction inception. Flood should not quietly rest somewhere between “buyer beware” and the lack of proper disclosure. A flood insurance premium is a monthly payment for the life of the loan, and not a one-time expense, so the age of the roof shingles or when the furnace was last serviced should never be given the same or more space on Disclosure than flood. Improved Disclosure must play a larger role in the flood program to reduce fear and create a more practical understanding of the impact of flood on real estate.
