Adjustments For Flood Zone Vs Non Flood Zone

[TMG]

Subject is Flood Zone A in a small isolated tract near a river. I do have one comp inside the tract that is also Zone A, and I am forced south into competing tracts which are Flood Zone X. Limited search area.

Other than paired sales, is there a rule of thumb adj, percentage adjustment, or other, that can be utilized and supported? I don't know if I will be able extract a flood zone difference via paired sales with the limited data I have so far.

Thank you in advance if you have advice and/or experience with this.

 

[Meandering]

No rule of thumb I know of, however, when dealing with properties in a flood zone, I try to find out how many times in 20 or more years the area flooded and the subject was impacted. Sometimes, there are buildings in flood zones that are elevated on hills, and don't ever flood. Sometimes, they flood every five years, so there needs to be specific considerations for each property, before I would be concerned about where comps are or are not.

Out here at least, the really neat thing about flood zones, is that they mostly follow the river banks, and do not run in a 5 mile radius from a point, so if you need homes that are more than usually impacted by flooding, that 1, 3, 5 mile limitation is virtually useless, and your comps could be much farther away, in a different municipality or school district, or on the other side of the river.

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[Meandering]

You might also caveat that flood insurance rates were supposed to increase substantially, but so far, have been stalled by the legislatures, which, might mean they change their minds tomorrow the expense side of buying or owning a house in a flood plain will drastically increase and may have a significant negative impact on value.


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[Lee Lansford]

Subject is Flood Zone A in a small isolated tract near a river. I do have one comp inside the tract that is also Zone A...

What does this one sale indicate to you when you compare it to other similar properties not so situated?

Also, talk to the listing and selling agents of the comp and discuss this matter with them.

Some flood zones are a real problem...others, not so much so.

And, no there is no formula for adjusting for the status...other than doing more research and analysis.

 

[Michigan CG]

One school of thought is to capitalize the insurance premium based on the current mortgage terms.

 

[Restrain]

Flood zones adjacent and in floodways are governed by the Corps of Engineers. Any development has to be approved by the Corp, which can refuse to allow any development if it may interfere with the floodway.

So you have to find out from your local Corps office of any development would be possible. It can diminish the value by as much as 80% becoming just park, pasture.

 

[Terrel L. Shields]

Your best choice is to do the paired sales or regression analysis or to capitalize the cost of flood insurance.

you might find that such adjustment is reflected in land values and so if you have lots to vet, you might find say, lots are selling for 60% of the cost of a lot without flood zone and use that as the basis for adjustment.

 

[Walter Kirk]

In over 25 years of real estate and appraisal experience in south Jersey (which has lots of flood zones)I have never encountered a situation where a buyer has refused to buy or demanded a price concession because flood insurance was required. Of course increasing flood insurance costs may change that in the future.

 

[Howard Klahr]

Flood zones adjacent and in floodways are governed by the Corps of Engineers. Any development has to be approved by the Corp, which can refuse to allow any development if it may interfere with the floodway.

First off, Flood Zones do not = Floodways. In addition, not all areas of the country are regulated similarly with regard to development regulations.

Secondly, adjustments by "rules of thumb", generic percentages or other non-supported approach do not belong in an appraisal report.

While I can appreciate that current data may be limited, have you evaluated historic data and compared these older transactions to those in areas you are attempting to quantify a location adjustment? As has already been suggested, contact local real estate agents to see if they are familiar with a preference by market participants, etc. No there are no short cuts to performing the proper analysis to support adjustments.

 

[RSW]

First off, Flood Zones do not = Floodways. In addition, not all areas of the country are regulated similarly with regard to development regulations.

Secondly, adjustments by "rules of thumb", generic percentages or other non-supported approach do not belong in an appraisal report.

While I can appreciate that current data may be limited, have you evaluated historic data and compared these older transactions to those in areas you are attempting to quantify a location adjustment? As has already been suggested, contact local real estate agents to see if they are familiar with a preference by market participants, etc. No there are no short cuts to performing the proper analysis to support adjustments.

You are correct. There is a flood way and then there is a flood way fringe. The flood way typically flows along with the river. The flood way fringe may be the back water when it floods. A perm. structure cannot be built in the flood way but can be built in the flood way fringe. An impact study is necessary to see what effect the structure you want to built will have on adjacent properties.