NO !! That is a formula you invented, you would have to see that actually occur in a number of sales prices to claim it is market evidence.
Buyers who choose a property in a flood zone under normal circumstances want that location or view or something is driving their choice, they can opt not to buy it, but if it is worth it to them, they will pay the extra $ in premiums. I would ask RE agents who work in the area if prices are affected due to higher premiums, also go back in time and compare flood zone vs non flood zone prices of similar properties
Thanks for your reply and your explanation, and even though it appears the consensus here is that this approach is not correct, I have never quite understood this explanation as it applies here (or, more commonly, $2$ concession adjustments). Maybe its because may market data in this county shows that waterfront (typically along the one or two small rivers there) properties carry virtually no contributory value. Living for many years in tidewater Maryland, this came as a bit of a shock to me, but there it is. The explanation lies in the history of the industrial history here and with the lingering effects of an older attitude that equates altitude with desirability, along with the lack off many new people moving here. So, there is a total lack of evidence that waterfront/waterview (even with subjectively pleasant views) has any contributory value. While absence of evidence does not indicate evidence of absence, I really have no choice but to not use waterfront location as having any contributory value. While there maybe exception; those properties that are marketed to that small part of the market that tends to come from more prosperous areas (typically retirees moving to 55+ communities), but this has little data behind it and is tiny percentage outside of such communities).
Given that, we now have the problem of $2000 a year that needs to be paid to live here. It really doesn't matter to me how nice the view may be (its not; you can't even see the water from the dwelling except when it floods) and it also doesn't matter if the home never actually flooded; people more qualified and powerful than myself have made the determination, based on what I presume is objective information, that insurance of at least $167 a month must be paid for the market based risk of being where it is. So, how to value a premium of $167 a month that has no discernible amenity behind it. While few buyers, I believe, would look at this using the approach I used, arriving at a similar number, most who buy and take on a mortgage tend to look at the monthly cost as in indicator of what they may afford. If someone's means to pay max's out at a payment of $800 month (including taxes and insurance), they would now have a maximum affordable payment of $633 a month. One may make an argument that some buyers may find this, or at least a portion of it, to be worth it, but that logic would apply to virtually every adverse situation. I seems pretty straightforward to me to, at least star with the default premise that, other sales, identical to (or perfectly adjusted) except for the need for insurance should have their indicated value adjusted for the amount of money they
don't have to pay. Yes, there can be reasons to adjust from this default, but one has to start somewhere.
Finally, there is an assumption that making the assertion that there is no market data with which to make a credible adjustment is simply a function of not looking hard enough. Well, I am adjusting not so much for being in a flood zone, but more for being in a location requiring a set monthly payment, so I need to find matched pairs with one requiring a known amount of insurance premium. Given the tiny number of such comps, the difficulty of finding out their payments (going back in time for data, I would need to find current payments) and the amount of confounding variables affecting them, I would have little trust in the credibility of such a result in our little insular, quiet market.
Oh, yeah. Someone suggested asking local realtors for what effect they believe this would have on value. Ha. I have never, ever gotten any usable answer from a "realtor" in my life. Broker/appraisers are better, but inevitably such questions elicit the answer we all give, "it depends".
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