Message from Jim
With reduced purchase and sales transactions, low inventory, increased inflation and higher interest rates, the real estate brokerage industry is shifting and a market correction is in process. The opportunity for real estate professionals and the public to strengthen flood risk perception and acknowledge its impact on value has never been greater.
For real estate values to appropriately reflect actual flood risk and local hazards, in-depth flood disclosure should become the standard driver in every transaction. There is no better available data than the history of the dwelling as it relates to flood risk and damage. If this data is not properly disclosed, property owners are accepting unknown risks which can lead to further strain on the real estate industry and local economy.
Technological advances aid in understanding risk, but for the most part, only if the underlying data is more current and utilized to create a new flood study, and minimal development has occurred in the vicinity since the map’s latest revision. You can see how this makes it difficult for flood risk tools to remain accurate. As well, real estate flood risk platforms such as My Flood Status and Flood Factor® may use similar or more updated underlying data, but capturing actual risk will always be a large challenge due to many other contributing factors that a software platform will not capture.
Having implemented Risk Rating 2.0, the new methodology for generating flood insurance premiums, the National Flood Insurance Program is diligently trying to shift away from the binary understanding of risk, which is best defined as a structure having flood risk if falls in a Special Flood Hazard Area (SFHA) or having no flood risk if it falls outside. The type of flood zone is no longer used to determine rates; however, the SFHAs on the Flood Insurance Rate Maps are still being used to determine if mandatory flood insurance is required. Furthermore, if Realtors and homeowners are determining flood risk with the aid of the above-mentioned platforms, the binary strategy will remain a large obstacle to applying appropriate mitigation and resiliency strategies that best address actual flood risk. The over-simplified “in” or “out” concept must be dismantled.
Enter improved flood disclosure to better capture actual flood risk, despite the limitations of the current risk assessment processes. Disclosure questions that address past flood or drainage damage, repetitive or substantial improvement or damage history, presence of a flood insurance policy, flood zone designation, Pre-FIRM or Post-FIRM construction status, or presence of an Elevation Certificate, would enhance program stability as it will more proficiently capture risk and value.
Considering the increasing occurrence of flood claims outside of a SFHA further exacerbated with the impacts of changing climate, we must accept what appears to be a negative in our understanding of flood risk, and have vision as to what we can do to create a better solution. More in-depth flood disclosure in each real estate transaction is a very practical and achievable action that could lead to tangible results.
