Flood Zone Marketability

[ZZGAMAZZ]

Assignment is re-finance in Flood Zone D and I totally neglected to address that factor in the "Site Analysis" addendum.

Client conditioned the report for my perspective of the possible impact on marketability.

The stip makes complete sense, but I'm also wondering whether an informed/knowledgeable buyer would possibly think about that factor, which presumably would impact the buyer's ability to obtain flood insurance, which I don't think is addressed in the RPA template; and I'm unaware of a specific Disclosure other than possibly the NHD, though I've never have seen a NHD.

I never push back on a stipulation without a specific reason, but I'm wondering whether the factor is a lending issue rather than an appraisal issue?

Peer perspective?

 

[Dublin ohio]

This is what FEMA says about zone D (my bold)

UNDERSTANDING ZONE D The level of flood risk is indicated on the flood map by a letter. For example, flood zones labeled with the letters B, C or X represent moderate- and low-risk areas. Flood zones identified by the letters A or V represent high-risk areas, known as Special Flood Hazard Areas (SFHAs). On some flood maps, there may also be a zone labeled with the letter D. The Zone D designation is used for areas where there are possible but undetermined flood hazards, as no analysis of flood hazards has been conducted. The designation of Zone D is also used when a community incorporates portions of another community’s area where no map has been prepared. Flood insurance is available in Zone D and property owners should be encouraged to purchase it. However, flood insurance is not federally required by lenders for loans on properties in these zones. Although these areas are often undeveloped and sparsely populated when designated as Zone D, lenders may become aware that new development in such areas has increased the possibility of property damage from flooding. Consequently, they may require coverage as a condition of their loans, even though it is not federally required. Flood insurance rates for properties in Zone D are commensurate with the uncertainty of the flood risk. Consequently, as seen in the table below, the Zone D premiums can be higher than a standard low-risk X zone premiums and significantly higher than the Preferred Risk Policy (PRP) premiums. If an area is being remapped and properties are going from Zone B, C, or X to Zone D, the insurance agent should determine if grandfathering the existing low-risk zone for future rating will provide a lower premium than using the new Zone D premium. Also, since Zone D is not considered an SFHA, a property that was designated in Zone D on the previous map and is newly designated in an SFHA by a map revision effective may be insured under the PRP based on the 2-year PRP eligibility extension. More details on grandfathering and PRP Extension can be found at

 

[ZZGAMAZZ]

The logical response would be to determine whether the comps are located in the same Flood Zone. However, the flip side would be to determine whether the comps are in a high-risk flood zone for all appraisals, even if the subject is, say, in Zone X, in order to determine relative marketability . . . and I wasn't looking for more work, to be honest.

 

[Restrain]

We have such issues constantly, and have a boilerplate in the comparables sales analysis where we discuss which homes in the comparables sale section are in or out of a flood zone, and if the MARKET shows a differential. Just one paragraph long. you might consider setting one up Just to satisfy the UWs.

 

[J Grant]

If your comps are nearby, some or all of them might be in the same flood zone. Annoying but not that time consuming to quick search your comps on map if they are in same flood zone, whatever market reaction exists is baked into the prices. Typically, in a flood zone the buyer can purchase insurance, it is often more expensive though - in fact in a flood zone the borrower is often mandated to carry FEMA flood insurance, in a non designated flood zone the owner is not required to have flood insurance - which is not always as good as it sounds since in a non flood zone, a house can still get flooded ! And now the borrower has no FEMA insurance thinking they did not need it since it was not in a flood zone

 

[ZZGAMAZZ]

We have such issues constantly, and have a boilerplate in the comparables sales analysis where we discuss which homes in the comparables sale section are in or out of a flood zone, and if the MARKET shows a differential. Just one paragraph long. you might consider setting one up Just to satisfy the UWs.

Yep. Just never thought about it. On the bright side, like you say, it's a relatively painless way to address a potential stipulation. Thanks much.

 

[Flakey]

I think it's a lending issue. I've had several instances where I noted a portion of the site was in a designated flood hazard area with no evidence of flooding and the lender has provided me with a completed Department of Homeland Security (DHS) and FEMA's Form 81-93: Standard Flood Hazard Determination Form (SFHDF) and asked me to change my report from an A or AE to X. I'm assuming your inspection didn't reveal any potential hazards.

 

[ZZGAMAZZ]

I think it's a lending issue. I've had several instances where I noted a portion of the site was in a designated flood hazard area with no evidence of flooding and the lender has provided me with a completed Department of Homeland Security (DHS) and FEMA's Form 81-93: Standard Flood Hazard Determination Form (SFHDF) and asked me to change my report from an A or AE to X. I'm assuming your inspection didn't reveal any potential hazards.

Assignment was exterior-only of a large residential parcel elevated above the neighborhood standard at an orientation that doesn't appear to be prone to flooding, although the FEMA Flood Zone appears to apply to a very large area, so elevation within a Flood Zone might not be a factor; and it would be interesting to learn how flood zones are determined. It was interesting to find that 4 of the 8 comps in this assignment that were in Zone X were located at a higher elevation, but within 1/2-mile, with the D/X border in-between. The website I use to obtain the info at msc.FEMA.gov/portal/home is user-friendly although search results provide map#, and map date, but not the zone, per se, which is displayed on a nondescript map. An easy fix to address the issue in the "Site" template, but more work--why always more but never less?????

 

[Zephyr999]

Assignment was exterior-only of a large residential parcel elevated above the neighborhood standard at an orientation that doesn't appear to be prone to flooding, although the FEMA Flood Zone appears to apply to a very large area, so elevation within a Flood Zone might not be a factor; and it would be interesting to learn how flood zones are determined. It was interesting to find that 4 of the 8 comps in this assignment that were in Zone X were located at a higher elevation, but within 1/2-mile, with the D/X border in-between. The website I use to obtain the info at msc.FEMA.gov/portal/home is user-friendly although search results provide map#, and map date, but not the zone, per se, which is displayed on a nondescript map. An easy fix to address the issue in the "Site" template, but more work--why always more but never less?????

So in your mind buyers don't consider this element so it's not investigated? How is an as vacant HBU analysis completed...zoning class only? Seems shortsighted...not extra work.

 

[ZZGAMAZZ]

So in your mind buyers don't consider this element so it's not investigated? How is an as vacant HBU analysis completed...zoning class only? Seems shortsighted...not extra work.

Your concern probably reflects peer concensus, although the HBU analogy is specious because HBU analysis is prescribed whereas research into the potential impact of flooding is one of a million factors that might affect valuation, e.g., fire zones, earthquake zones, Superfund zones, etc., etc.

My perspective about the relative awareness of a potential buyer--regardless of how theoretical the point was meant to be--goes to "market reaction," which as the basis of the Sales Comparison Approach to appraisal valuation is by definition based upon the collective perspective of market participants; and if a theoretical buyer isn't aware of, or concerned with, flood information when making their "informed" decision, why would that factor be taken into consideration when cumulative market reaction is determined? And if not, why would it be included in an appraiser's analysis (for the sake of argument of course).