Sellers often don’t know their Flood Zones
Published January 27, 2008 by Terry Rush CremiaOur market centers on a tiny strip of sand bordering the Atlantic Ocean called the Outer Banks of North Carolina. You could say we are part of “hurricane central” which can mean occasional flooding.
Here, as you can imagine, we live by the FEMA special flood hazard zones.
The flood insurance coverage we carry (or not) is dictated by lenders of federally-backed or federally-insured loans and the lenders are the entities who dictate what kind of insurance we must carry and can obtain.
One of the most popular destinations for vacationers and thusly investment/rental property buyers here is the area of Corolla in the northern Outer Banks. Corolla lies in Currituck County, which after about 20 years adopted FEMA’s new flood maps in December of 2005.
You would be shocked at how many owners never knew about these flood zone changes and subsequently, we are now finding out just how many owners currently for sale have no clue what their current flood zones are. Admittedly, these are largely absentee owners…but that is no excuse for not being on top of something as important as flood zones.
The flood zone of a property can make a huge difference in the amount of insurance costs that must be carried by the new buyer of a property that WAS previously in a highly elevated zone requiring no flood coverage but is NOW in a lower zone requiring flood coverage AND the dwelling now has a non-conformity which only compounds the cost of full flood coverage that the new buyer probably wants to carry but can’t really afford, or at the very least the basic bare-bones flood coverage that the buyer MUST carry.
There are sellers who have NO IDEA themselves about their own flood zone OR how their new zone, if changed, will ultimately affect the eventual buyer. Some of these sellers and their agent have listed properties disseminating owner’s insurance costs/coverage without mentioning or knowing that those preferred prices will not pass along to the buyer. Yes, this can be said for any transaction, but my point is that we need to mindful of flood zone issues.
An under-contract buyer will anguish over whether or not to back out and relinquish his earnest deposit once he gets the new astronomical insurance coverage quotes. He might worry for a year or more that, because the property he backed out of has subsequently failed to sell, the seller is going sue him because he decided to avoid a property for which he could not obtain full or reasonable insurance coverage.
In the same time frame during 2006 I represented both a seller and a buyer on two separate properties for which one seller was truly clueless about their flood zone change and the other either knew and their agent didn’t divulge the information, or none of them really knew.
My seller actually argued it with me and became angry! Sure enough, they were wrong, I was right, and it was because of THAT property that I found out about the new flood zone on the property for which I represented the buyer.
Of course I was very upset that I did not know this information myself before my buyer went under contract. North Carolina is a buyer-beware state, and it is possible that listing agents occasionally ignore certain facts that they feel should be discovered by the buyer or his agent.
Listing agents should be just as dilligent in making certain everyone is “on the same page” regarding flood zone and flood insurance issues because listing agents don’t get paid either if a deal falls through! Can’t we all just get along?
You can be assured that since that time I have been extremely diligent to find out both the old AND new flood zones for any properties in Corolla that I either list for a seller or think an interested buyer might offer on.
But my defaulting buyer was, and still is, glad that I found out what I did, when I did. If for no other reason, it kept him from buying a non-conforming property, which some people do not want.
I urge all property owners in flood-prone areas across the nation to KNOW your flood zone, keep up to date on any flood coverage issues and make it known up front when selling to avoid such sticky situations. Isn’t it better to disclose up front rather than to be angry that a buyer had to find out bad news AFTER spending quite a bit of money during the under contract process, only to back out at the very end?
I also urge all Realtors to be diligent in discovery about these matters because you might be the only one looking!
1. Ronnie Roach (1 comments.) says:
Great information. The cost of insurance - especially in the 4WD area can be a real shock to a potential buyer. Lenders that are not familiar with the area will typically provide a pre qualification without taking into consideration the expensive insurance. Sometimes that added expense can make the pre-qualification worthless. It is important that buyers deal with knowledgeable agents and lenders to help eliminate those “gotchas”.
Posted January 28, 2008 @ 12:08 pm
2. Amy says:
I am interested in knowing, how are you able to check on the previous owner, and know if they were paying flood insurance. Her property disclosure stated property was NOT in flood zone, but shortly after I bought the house, it came to light that I am, and the neigbors confirmed “she was aware of the flood zone, and was paying flood insurance”.
I am desperate for help!!!
Posted March 21, 2008 @ 3:11 pm
3. Terry says:
Amy, we advise and assist our buyers to obtain an elevation certificate on the property. Typically, lenders and insurance companies require one in our area anyway before the purchase.
We also put buyers in contact with the seller’s current insurance carrier before purchase, during the insurance-procuring stage, to get quotes, ask about assuming the policy or gather basic info such as flood insurance and flood zone issues.
If you did not get a loan or use buyer representation you might not have had two protective layers guiding you throught the purchase.
The point of the blog entry was that sometimes sellers really do not know when a change has been made to the Zone of their lot, especially if they reside out of state or have owned for a long time.
The FEMA flood issues officer for your county or municipality can tell you the flood zone of your property, and a land surveyor may be hired to tell you the exact elevation.
Posted March 21, 2008 @ 3:41 pm
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