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How does Flood Plain affect value?

Discussion in 'General Appraisal Discussion' started by Sharon Lemle, Mar 12, 2008.

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  1. Sharon Lemle

    Sharon Lemle New Member

    0
    Jan 21, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Ohio
    I'm throwing this out there................

    Here's the situation:

    An owner has lived in her house for 10 years with no previous flooding. Recently, her property was declared by FEMA to be in a flood plain. To what extend would that affect the value? (if any). The owner now feels her property is now worth less because of this new designation.
    ( Note:There are no other sales in the area that are also in the same flood plain)


    And, for future reference....Are they any resources for appraisers out there either by FEMA otherwise with guidlines on how to determines property values located in a flood plain?

    Thanks to all !!!
     
  2. Judy Whitehead (Florida)

    Judy Whitehead (Florida) Senior Member

    0
    Jan 20, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    Well, down here in the sunshine state, homeowners in a flood zone must pay for flood insurance if they have a mortgage on their home. Sometimes many thousands of dollars more, sometimes less depending on which "level" they are in. A home buyer that has to pay more for homeowner's insurance but has an opportunity to purchase a similar home in a non-flood zone area, typically will pay less for the home, since their homeowner's insurance is more. How much less would depend on a paired sales analysis.

    If the homeowner is looking for advice, or an appraisal to determine loss, then I would suggest she find out how much extra any insurance is. If it is only a minimal amount per year, then perhaps the impact on market value is minimal as well.
     
  3. Michigan CG

    Michigan CG Moderator Staff Member Moderator

    166
    Nov 1, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Michigan
    To check your paired sales analysis try this:

    A person can buy an similar home not in a flood plain for say $200,000. You get all of your adjustments done and come to a $200,000 value. But what about the flood insurance aspect?

    Let's say the flood insurance is $100/month. That $100/month could be used for a house payment but now has to be used for flood insurance.

    6% interest, 30 year term, $100/month = $16,679.

    5.75% interest, 15 year term, $100/month = $12,042.
     
  4. Mike Boyd

    Mike Boyd Elite Member

    0
    Jan 18, 2002
    Professional Status:
    Retired Appraiser
    State:
    California
    Flood Plain or a Flood Zone? Big difference. May not be able to re-build if in a flood plain. Go back in time as long as necessary to develope a matched pairs analysis. Find the percentage of difference, if any and apply it to your subject. If it does not have the off-setting amenity of water frontage and you cannot find ANY comps, you need to find out how much the flood insurance is and then you can capitalize the amount and determine a depreciated value.
     
  5. Mountain Man

    Mountain Man Elite Member

    15
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Georgia
    Is it on a substantial amount of land? In my area, developers like to buy land that can be developed with no more than 40% to green space.
     
  6. Howard Klahr

    Howard Klahr Senior Member

    75
    Oct 4, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    What changed to result in a change in the Flood Zone? There would have to have been come change in storm water drainage, the flow of some water source, elevation, excavation, etc.

    Due to the size/scope of flood zones/flood plains more than one residentil property is likely affected by the change.
     
  7. Judy Whitehead (Florida)

    Judy Whitehead (Florida) Senior Member

    0
    Jan 20, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    FEMA is in the process of updating their flood maps - the water districts are helping in Florida. The topography changes with newly paved streets, redirecting water flows, and the technology is so much better now that determining flood elevation is much more exact.

    My thought would be that perhaps the homeowner has been put into a lower flood elevation that may not necessarily required flood insurance, but is considered a "100 year flood zone" or something like that. You need to find out specifically what flood elevation has been given to her before a determination of an impact on market value can be determined.
     
  8. ZZGAMAZZ

    ZZGAMAZZ Senior Member

    0
    Jul 23, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Mr. Evans: I'm curious but with limited experience. Would you extrapolate the monthly premium throughout the duration of the loan, or for a "holding period" reflecting the typical length of ownership, e.g., 5 or 10 years? Thank you.
     
  9. Michigan CG

    Michigan CG Moderator Staff Member Moderator

    166
    Nov 1, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Michigan
    That is where it gets complicated. They say the average homeownership term for a property is 5 years. However, aren't most people payment buyers....i can afford this 2,000 SF home @ $200,000 or $1,199/month on a 30 year term, but then i have to pay $100 more for flood insurance. Or I can buy the same model home for $1,199/month without spending that $1,200/year.

    There has to be a value difference, and I am sure homeowners do not think it through like I did, but there is a negative to the home in the flood plain. You also have to look at resale, the person who only stays in the home still has to resell it in 5-10 years and thus that is a concern for them at the time they purchase. Therefore I do not see reducing the extra insurance premium to just the holding period because you have to sell the house to someone who may have the same options (theory of substitution) when you are trying to sell and they will also see a detriment to the property.
     
  10. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    245
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Try to find out if the loan is 15 or 30 or what. I would use that m/l as a guide in the absence of paired sales suggesting an impact.

    OTOH, I rarely DCF a cost over 10 years unless I can "prove" it is applicable...and of course the longer it is the diminishing change in value. I think it reasonable to figure this on the mortgage basis because the insurance is often bundled in the mortgage loan. But once a property is flooded, it may suffer a stigma and that is a separate issue. Stigma is reduced over time.

    If annual flooding occurred, the house would suffer much greater impact. But 10 years is meaningless (that is it does not establish that it won't flood, but simply that it hasn't.) The flood maps are 100,50,25,10 yr. etc. typically. Meaning that there is a probablity of 1:100 of a large 100 yr. flood each year. a 1:10 probabilty of reaching a lesser height every 10 years. And a flood this year does not mean you won't get a flood next year...or even next week. Floods often reoccur in rainy periods.
     
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