With homes for sale in Plymouth County & Cape Cod boasting hundreds of ponds and oceanfront, I have a vested interest in how flood insurance will be handled moving forward. And yes, I have seen a change in transactions for homes near water.

    Flooding in Plymouth and Cape Cod

There has been no shortage of media coverage of FEMA’s flood map updating project. FYI, my BLOG contains updates and information going back to October of 2013 (Just browse the list of prior blogs). And even congress had to get involved and pass legislation to protect homeowners who have property near water (at least for few years). And yes Realtors, Buyers and Sellers in markets facing water have been worried, nervous or at the very least concerned about their sales.

I think the insurance industry exacerbated these concerns using FIRT (Flood Insurance Rate Tables) supposedly based on updated FEMA maps that are not yet complete. I personally saw a couple of homeowners receive their annual flood insurance bills for $49,000 and $68,000 respectively.

Congress acted on this possible escalation by passing legislation slowing down this process until all mapping was completed and they can implement a graduated plan. Clearly the government wants out of the program (NFIP) and cost of subsidizing flood-damaged areas. People who wish to live in these areas must now assume they will – at some point – need to pay fair market value for insuring against damage.

Plymouth house flooded

So homeowners can either self-insure or if you have a mortgage your lender will require you to have flood insurance if you’re in a designated flood zone. In Massachusetts legislation was recently passed to allow a homeowner to purchase flood insurance only up to the value of their outstanding mortgage as opposed to full replacement cost. Saving some cost and removing risk from lenders so as not to destroy the real estate market. But rates are still going up a planned 25% per year until the homeowner is paying the real cost to insure their property.

The dilemma is real for both Sellers and Buyers:

    1) No one can predict or wants to provide the final cost of a flood insurance policy once the local and national governments are out of the subsidy business. Uncertainty is not a word one wants when buying property.

    2) Some areas are seeing large numbers of listings. Sellers trying to sell thinking they are getting out ahead of the problem or potentially looking for uninformed or oblivious Buyers. The horse has already left the barn folks.

    3) Buyers wanting to buy a property and even willing to help pay for “elevation certificates” to determine the level of flood insurance needed if any, or to confirm the property is not in a flood zone. One client was willing to pay the policy cost if it was within a workable range. The Sellers withdrew wanting to think through their options.

    4) Sellers with waterfront homes on the lower end of the market faced with flood insurance premiums they simply cannot afford and cannot sell their homes unless they are all cash transactions.

    5) Insurance companies not willing to enter the market for flood insurance knowing their internal rates of return will require much larger policy costs than the homeowner expects or is willing to pay. Do they want in this business?

    6) The reality is New England must do as other areas – modify their properties to better withstand flooding. This means putting your home on pilings and/or modifying your basements to allow water to flow through moving all utilities to main floor elevations. This will reduce your flood insurance premiums but not eliminate them completely.

For Sellers who can afford modifications or Buyers paying all cash, it can work. For Sellers unable to modify or Buyers needing to finance, the market for homes near or on water has become polarized waiting for someone to make a decision. I suspect congress will again provide some form of subsidy to keep the housing market moving. But that is about politics – and we know how that’s going.

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