NATNews Blog > February 2017 > Flood insurance expert advises real estate agents to educate themselves about flood risk, insurance

    Flood insurance expert advises real estate agents to educate themselves about flood risk, insurance

    2/16/2017 9:32:21 AM
    In August 2016, an historic rainfall event buried counties in Louisiana under 20 inches of rain. Because many areas located away from the main waterways were not considered to be in a classic “flood zone,” less than 10 percent of the property owners had flood insurance.

    In a session titled Never Underestimate Your Client’s Flood Risk at the National Association of Realtors Expo in Orlando, Melanie Graham with H20 Partners Inc. in Austin, Texas, pointed to the Louisiana flood event when she advised the best thing real estate agents can do for their clients is to tell them “every building is in a flood zone.”

    “Flood insurance can be purchased in any flood zone, not just the high-risk ones,” Graham said. “Sometimes after a flooding event, we will hear property owners say, ‘I only thought I could purchase flood insurance if I was near the coast or on a lake.’ I want to dispel that myth. There is a preferred risk policy for the low- to moderate-risk zone, and it is a very affordable option.”

    Graham emphasized how critical it is for real estate agents to be educated about the flood zoning in their areas, and how that knowledge can be a “value add” to the services they offer both residential and commercial clients.

    It is sage advice. In January 2017, CoreLogic released its annual Natural Hazard Risk Summary and Analysis, which showed relatively average or below-average activity for most U.S. natural hazards with the exception of flood and wind. CoreLogic reported a $17 billion flood loss in 2016, which was six times greater than the overall flood damage experienced in 2015. 

    Graham acknowledged buyers are often more concerned with the number of bedrooms in a home or the square footage of a warehouse.

    “They may not have flood insurance top of mind, but you can rest assured that every building is at risk and therefore every property owner has a need to protect their investment,” she said. “The risk is ever present. These flood zones are not static; they are forever changing. Every time a building is built or a road is paved, every time a storm drain or levee or any type of engineered project is added, the flood zone changes. You don’t know how it is going to affect all of the buildings around it until the water comes.”

    How can a real estate agent help their clients? First, Graham advised, the agent should begin by having a realistic understanding of the flood maps in the areas where they are selling, and specifically, they look up the flood zones for any properties they are showing.

    “How great it would be if you have the information at hand, knowing in advance what the flood zones are or having a link you can share with them to give them some additional information as well,” she said. “For some of you, the information is going to be available in your MLS system. However, there are other resources.”

    A key resource, she said, is FEMA’s map service center at MSC.FEMA.gov, where an agent can plug in an address, locate the flood plain map and save it to their computer.

    Graham said the agent should also consider having a frank conversation with the homebuyer concerning homeowner’s insurance.

    “Homeowner’s insurance policies do not cover floods,” she said. “Once it is determined the general condition of flood has been met, that is when the homeowner policy ends, and only a flood policy will respond to the event.”

    As part of the conversation, Graham advised that agents educate clients about what it means when an area is declared a federal disaster area due to flooding. The commonly held myth is that once a presidential declaration is made, federal dollars will flood in. That’s not exactly the case, according to Graham.

    “While it is true the declaration brings a certain federal budget, what they don’t get is that it most often comes in the form of a loan through the Small Business Administration,” she explained. “There is some grant funding that would not require a payback, but for the most part, they are loans property owners are receiving, which attach to an existing mortgage. A much better policy is to be protected before the flood event happens. You can receive disaster assistance even if you have a flood policy, and that is the best position to be in.”

    If an agent has ascertained the property is in a flood zone, it is important to inquire if a seller already has a flood policy. An existing policy can be assumed or assigned to the new homebuyer in many cases.

    “That is the most seamless way to make the transaction occur,” she said. “Make sure you ask these questions as you are going through the process.”

    A further point of education is to note the National Flood Insurance Program (NFIP) only insures to $250,000 for a residence. If a homebuyer wants to insure to the full replacement value of the property and its contents, they would need to supplement the NFIP policy with a private policy.
    Graham said real estate agents should identify and surround themselves with truly knowledgeable professionals to make sure they are providing their clients with the best information.

    “You need an insurance agent you can really trust and is knowledgeable,” she said. “If you need the elevation certificate, you need to know a good surveyor. Get to know your state flood plain manager. Have a good resource to get your information. Your local association may have a flood group that can mentor you.”

    Graham concluded by noting that flood zoning and flood insurance is one of the most complicated issues in real estate.  Being informed is critical to effectively working with clients who are considering purchasing properties in or even near a flood zone.
     
    The information in this article is provided as a general educational resource and is not intended to, and shall not be deemed to, constitute legal advice. For questions concerning a specific situation, please contact an attorney or insurance professional.