Home Under Contract Is Newly Listed In FEMA Flood Zone Ao

[Ski Dad]

I'm the buyer, and one week prior to closing, the mortgager found that it's in a FEMA floodplain. Only about 10 homes are in this floodplain, which is considered in a 100 year flood area and has a 1% chance of flooding each year. None appear to have conveyed since the designation. The sellers didn't disclose, and claim (probably legitimately) that they didn't know. Insurance preliminarily came back at $6150 per year (yikes!) for $250k of insurance.

Currently the sellers are getting an Elevation Certificate, which i expect will show one of 3 things:

1) It's actually not in the floodplain, in which case we have to try for an amendment (FOMA),
2) It's in the floodplain but relatively benign (maybe only affects land not structure?) - insurance prices are manageable, or
3) It's in the floodplain and more serious.

My dilemma is that as buyer, i need to make sure the costs are affordable obviously, but the harder thing to pin down is resale value and how hard it will be to convey in the future. I'm looking for advice and proper considerations, and would welcome contact from someone who is an expert on this who could even potentially look at our specific situation privately.

Thanks!

 

[Terrel L. Shields]

Big Thompson Canyon should be a reminder that 1% chance of a flood does not mean the flood cannot be extraordinarily damaging nor is it particularly rare. One thing I learned about flood routing when I worked for an engineer was that in the Rockies, a flood can be highly unpredictable as rare as it may be.

Value wise, it hurts. In the absence of market data, that premium ($6500±) would be discounted, so if it adds 10% to your house payment, it likely detracts the value by an equal amount. That is somewhat distorted by the ultra low, FED depressed interest rates, but the impact is not only to depress the price, but also simply drive some buyers away who realize they can buy more bang for their buck without the risk of being flooded. Personally, since it was not disclosed, I might simply ask for my earnest money back and go find another property. In fact, I know I would. Even if the flood insurance were free, the risk of flooding in a Thompson Canyon situation is the risk of dying. It is not like flat ground flooding where you can wade out and escape.

Hey! I'm above the flood zone!

 

[Ski Dad]

Thanks Terrel. That's a pretty striking image. Yes, i'm familiar with some of the devastation - Boulder had a 500 year flood a few years ago. this appears to be a much less serious situation but we're doing the research. What was the before picture like?

 

[Terrel L. Shields]

What was the before picture like?

I don't know there was a before picture. That is just off the internet but is a pix in Big Thompson after the flood. Do note that there is a lot of hillside that was eroded and crashed down, so there were houses and roads that disappeared that were well above the flood.

In some place like Cherry Creek in the flat side of South Denver, you are in a very large flood zone that also rarely floods, but does and the flood waters are less extensive. So are you in a flat area? or a steep canyon site?

Cherry Creek flood of 150 years ago

 

[glenn walker]

Think about how much $6,150 a year is in terms of how much that would equate to mortgage cost today. A $100,000 loan at 4% on a 30 year mortgage is about $478.00 per month, So In my opinion you are paying about $100,000 to much unless this is your dream home and you don't care BUT how much extra home can you get for that kind of money ? As far as resale ask yourself if you had known it was going to require flood insurance would you have entered into the contract ?

 

[Mark K]

Without trying to address the effect on value (you need local, professional advice for that) I think what you'll find is that external conditions that result in stigma will affect the typical buyer in one of two ways. Either it won't bother them or they won't even consider purchasing the property.

We have flood zones in this area and other externalities like proximity to a large airport, freeway, steel mill, etc. We even see the same issue for well and septic vs. municipal utilities. The potential buyers aren't bothered or maybe only minimally or they won't consider the property at all. Period. No way. Its more of a reduced market segment. However, we don't have any situations where the flood insurance is $6,500 annually; that amounts to about 4% of our average sales price. It would certainly have a significant negative impact in this area.

It can take a long time for a FEMA map amendment decision. Personally, I'd take Terrel's advice and cancel the offer and find another home unless this is the "one and only" home on your list. In that case, be patient and complete the due diligence you have already started.

Good luck.

 

[Michigan CG]

Using Glen's 4% and $478/month payment on $100,000 the $250/month in flood insurance the home's value is reduced by $52,000.

If you were to apply the entire $728 ($478 + $250) payment a person buying $100,000 home could instead buy a $152,000 home that does not need flood insurance.

Think in terms of payments, everyone is a payment buyer.

 

[J Grant]

Terrel gave you good advice about possibly walking if turns out property is in a flood plane and not being disclosed gives you an out. Imo, I think would be worthwhile to run this by a RE attorney, see what your options are. if it is in a floodplain, and you want to proceed, maybe they will reduce the price.

$6150 insurance in flood plain vs how much insurance not in floodplain? $2500? $3000? The difference between the 2 payments is what additional this property will cost you to live in annual. Most sellers are not going to discount that out to you over 30 years (who stays in a house 30 years?). Some people do, but some only stay 5 or 10 years. But they might discount it out for 10 years.

Would take a good appraiser who really knows the area to project. If there are some highly experienced RE agents in area they can offer insight as well.

Look at it this way, you are hesitant now to proceed or might want a discount to stay with the deal, so any future buyer is likely to feel the same

 

[techbiker]

Do you have a copy of your plat? Base flood elevation might be indicated there with minimum allowed building elevation. It's a long shot but if the house is above BFE, flood insurance premiums fall dramatically ($600 /yr?). Keep an eye on the elevation certificate!

We just purchased an office building located over a flood plain. The portion of the building over the flood plain is elevated 2' above BFE on large steel/concrete piers (built post-FIRM). Our flood insurance premiums are a minute percentage of our mortgage payment.

 

[CindyR]

I appraised a home in flood area last year and got to talk to the owner a bit about that possible flood business. He had only purchased the home two years earlier and it was in AO zone then too. I asked if he was concerned about the risk or danger and he just shrugged and said 'no problem - that's why there's insurance.' The horse pasture backed right into the wash on this one. I don't care how much insurance i had, the thought of coming home and finding my horses dead downriver is just not something i ever want to do. What about kids? Adults might have a good idea how to stay safe if the water rises quickly but maybe some youngsters might not? And just because something is insured do you really want to lose it? And go through the upheaval of rebuilding it?

And don't be too much comforted by that '100 year' schedule. That does not mean it will not flood for 99 years. That means if it floods next week it will probably not flood again for 99 years. And even that is not true, we've got some neighborhoods here in phx where the same streets flood every year. Some buyers would not consider a home in a flood zone for one second under any circumstances.