Home in Flood Plain - Deal breaker?

Question

Hey guys! I am currently under contract to buy a home in Arizona. The home within close distance to a street that is designated as a flood plain AE which has a 1% of flood annually and is high- risk. Have any of you received quotes for flood insurance? I am asking my ins agent to provide but have heard quotes as low as $500 annually or $10,000 depending on how high above the home is of the Base Flood Elevation (BFE). I got a quote for a survey to get a flood elevation certificate but its $400... not sure if thats worth it yet. Any advice would be greatly appreciated!!

Dave E. · Answer

@Braxton Palmer for me being in a flood plane is a deal breaker. Flood frequency is something that is tracked pretty accurately, but basically there is a 100% chance that the property will get flooded at some point in the future. It may be in 100 years, or it may be tomorrow. If the area hasn’t seen a flood in 100 years then it is probably due.

For me it’s a no.

Susan Maneck · Answer

I own five houses in a flood zone. It is hard to find houses in Mississippi that aren't. I pay an average of $1000 a year extra in flood insurance for them. If your house is close, but not in a flood zone I wouldn't worry about it, but you want to make sure whether it is or isn't. This website can help you: https://msc.fema.gov/portal/home If it is in a flood zone find out if it has ever flooded before. Recently the creek in back of my houses did overflow but apparently did not enter any of my houses. Neighbors were not so lucky judging by the carpets I saw by curb next garbage day. I might add that while most of my houses in that flood zone have flood insurance, some do not because I own them free and clear. I might add that I do have flood insurance on my principle residence which is not technically in a flood zone but I've seen the street flood so often I decided to get some anyhow. It only cost about $350 a year.

Corey Hawkinson · Answer

@Braxton Palmer I would recommend doing more research. I don’t know much about Arizona but I looked at a house where I’m from in Minnesota off the Mississippi River. Loved the price and the view. Did more research into the flood status and walked away because it wasn’t a matter of if but when. Turns out the “when” was the next year after I passed on the property.

I even looked into products such as AquaDam which would protect the house, but is expensive. Could have been worth it given the discount on that house vs others though.

Michael Noto · Answer

@Braxton Palmer First step is to do what you are doing and see if the numbers work with the added insurance cost. If they don't just move on, if they do then evaluate further.

I have had clients purchase in flood zones and they felt comfortable because they knew the area the home was located in and had a good idea of the flood risk involved.

Mason Hickman · Answer

@Braxton Palmer

Are you saying it is $400 to get an elevation certificate or that is the actual annual insurance premium.

I've purchased flood insurance in the past without ever needing to pay for an elevation certificate; the insurance companies just used the FEMA maps.

Asim Sheikh · Answer

@Braxton Palmer - I believe that you're on the right track to get a few quotes from at least 3 different agents, and they should all be fairly close to each other.  If one is way off the others, I would eliminate that one.  Once you have this information, work it into your analysis and let the numbers guide you in your decision on next steps.  Good luck!

Account Closed · Answer

Deal breaker for me.  My first home after I got married was in a 100 year flood zone in WA.  Right after we got a divorce, it flooded.  Fortunately, he got the house.  Karma is a beoch.

But, I digress.  No, it would be a deal breaker for me.  Because, as others have said, it's a matter of when.  And even with insurance, then you're dealing with an insurance company whose job it is to make money for their stockholders, so it's usually a fight, and dealing with a flooded building, and losing rent, returning deposits, on and on.

If you do this anyway, be sure and also get loss of rent insurance, too, so if it does flood and you lose rent, you can get that covered, too.

Robert Murphy · Answer

@Braxton Palmer, What a great question Flood Insurance always seems to be a hot topic. The question of is a property in a flood zone or out is always the question. Know that many times developers will work with a community to get the new development mapped out of the high risk flood zone (Aka 100 year flood zone). Because it is easier to sell the property so whether or not a property is in the high risk flood zone or not doesn't necessarily say whether or not the property is safe from flooding. On that note there is a very real reason that none of our domestic insurance companies (Allstate, State Farm, Geico, Progressive, on and on) will cover flooding - this is because they know that any property (and I do mean any property) has a 20% of flooding so they don't want to cover it and it is excluded in the policy language (under exclusions). On top of that the government knows that flooding is the #1 natural disaster that the US faces (although this Covid thing might over take it for the short term). And since the domestic insurance companies wouldn't/couldn't cover the risk of flooding in 1973 the government started the National Flood Insurance Program (NFIP) which is managed by FEMA and this program enjoyed a monopoly of 50 years. The intent of the program was to help cover properties that were in high risk flood zones at that time. But over the years builders (using the strategies I previously outlined) decided that building in high risk flood zones was a good plan (AKA every beach property or property built right on large body of water including rivers)  because the government will bail out the property owners which they have (kinda) and are currently in debt  20+ billion. That being said there are many alternatives to the government flood insurance (google search "Lloyds of London flood insurance" or "Private Flood insurance market" and then you will get the real picture of the full spectrum of options available for your flood insurance. To buy in a high risk flood zone or not that is the question. I believe that if you are going to go for it –you should at least get the seller to pay for and/or provide you with an elevation certificate (EC). The private flood insurance markets don't really use them but the NFIP or government option does and sometimes the government option has the best price when you use this EC document. NOTE: if the property has had a flood before and you still decide to move forward with the purchase of the building make sure you get all the history about the flood claim (including the payout) reason I recommend this to all my clients is because the claim (or flooded) information is protected under the privacy act (WAHA) and if you ever have to dispute the government information about the history of the property you will have a long process of trying to get access to the document you need to dispute with the government. I have worked with many clients to get the history and this is a long and tedious process. As a resource you can use this link to put in any property and see if it falls into the high risk flood zone or not if it does (your lender will require you to purchase a flood policy) if it is close I suggest you get one anyway because it is just for peace of mind just in case. Any questions. I can help with LET ME KNOW. YOUR FLOOD NERDHOW TO TELL IF YOUR PROPERTY IS IN A HIGH RISK FLOOD ZONEhttps://hazards-fema.maps.arcgis.com/apps/webappviewer/index.html?id=8b0adb51996444d4879338b5529aa9cd

Braxton Palmer · Answer

Thank you all for the detailed feedback and personal stories! I did some on the ground research and asked a few neighbors, some of which have lived in the neighborhood for over 50 years, all said they've never had issues with flooding, even in Monsoon season the street flows a bit but is heavily supported by storm water drains and never near the homes. I got an initial estimate and it came in way higher than I was hoping, my agent dug a little further and spoke to FEMA underwriters and they corrected his quote and reduced it by 4x!! needless to say, the flood insurance is now under budget and fits within my overall insurance budget (after getting a few additional discounts on my home insurance quote ;) )

The deal now definitely pencils for me. I get that it could be a matter when but the home is far enough from the street that is troublesome that I am fairly confident it will be fine. This home will be a personal residence (which I will be house hacking with 2 roommates), then an airbnb or rental in a few years with great supporting comps and favorable cash flows. Thanks again everyone for all your valuable insight!!

Joe Splitrock · Answer

There is a misunderstanding about the term 100 year flood plain. If it is a 100 year flood plain, it means the statistical chance of flooding in a given year is 1 in 100. The misunderstood part is that it doesn't mean it floods 1 time in 100 years. It could flood every year. In other words, even if it has not flooded for 99 years, that doesn't mean the odds are any better it will flood next year AND if it flooded last year, odds are just as good it could flood this year. A good analogy is flipping a penny for heads or tails. There is a 1 in 2 chance that you get heads, but you could flip tails five times in a row.

But I agree, there is no reason to invest in a flood plain. Even if you have insurance, dealing with a flooded property is just not worth it. In a business it is best to look for ways to remove risk. If I buy a property at the top of a big hill, my odds of flooding are 0%. Given that there are tons of properties available not in flood plains, why invest in a flood plain?

I would consider a flip in a flood zone, only because it is a short term hold.

Home in Flood Plain - Deal breaker?

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