Flood Insurance: What You Need to Know
by Mark Bingaman
Photo credit: Studybluw.com
Some people simply avoid buying land in federally designated flood plains. Others take advantage of the lower cost of real estate within a flood zone and happily scout for bargains. At issue for both is the high cost of flood insurance for both businesses and home owners. But help could be coming on flood insurance rates for landowners.
The National Flood Insurance Program (NFIP) plays a large role in helping landowners afford ownership in those spots where water often spills forth, but that program is set to expire in 2017 and even those who benefit from the program’s assistance often face skyrocketing premiums each year. Lawmakers are currently debating if – and in what form – the NFIP will be renewed.
In 2014, the “Homeowner Flood Insurance Affordability Act,” helped to bring costs down, but even today, those rates often increase by as much as 25% annually, a jump that can continue for perpetuity until the land owner reaches what is known as the “full-cost rate.”
It’s vital for landowners to achieve this so-called “full-cost rate,” but to do so they must spend hundreds or even thousands of dollars to hire a land surveyor and then supply the Federal Emergency Management Association (FEMA) with an elevation certificate. If that certificate shows that the landowner has reached “full cost” the owner may request that the annual 25% rate increase cease. If not, the cost continues to rise 25% each year.
Furthering the problem is that many property owners are either unaware of this point or simply fail or forget to achieve the certification. Others may find it difficult to shoulder the burden of paying a surveyor for a job that could potentially cost hundreds or thousands of dollars.
Real estate industry executives recognize this dilemma and tout reform and current legislation before the U.S. Senate as difference-makers. In June of 2016, David McKey, the National Association of REALTORS 2016 Insurance Committee vice chair, testified before the U.S. Senate Small Business and Entrepreneurship committee and urged them to:
- Reauthorize the National Flood Insurance Program, (which otherwise expires in October 2017).
- Using advanced technology to improve the accuracy of flood maps and reduce the number of landowners subject to higher rates.
- Nurture a private insurance market to complement the NFIP.
In April of 2016, the U.S. House of Representatives unanimously voted 419-0 for the Flood Insurance Market Modernization Act, H.R. 2901, sending the bill to the Senate.
Sponsored by Reps. Dennis Ross (R-FL) and Patrick Murphy (D-FL), the bill encourages the development of private market options where property owners lack access to affordable coverage under the National Flood Insurance Program (NFIP).
McKey also put forth an NAR-backed plan for the prevention of flood damage whereby federal funds would be utilized to mitigate properties located in declared flood plains. McKey suggested that it’s possible to protect property owners while also saving taxpayers’ money, but, of course, whether lawmakers believe this plan to be fiscally sound is another matter. The prevention could include flood proofing, elevating, or otherwise strengthening a property.
At LandHub.com, we think that finding the land of your dreams shouldn’t be held back by issues pertaining to flood plains. In this day and age, we have the technology and resources to minimize damage, and we hope to see affordable flood insurance remain a viable option for all. We’ll keep you updated as legislation is enacted and changes made.