A property’s flood risk may seem like a perilous factor in a transaction, but it’s actually a great opportunity to demonstrate your knowledge and value and to better protect your customers and community. When you’re selling a home that may be at risk of flooding, be aware of some of the possible hiccups in the sale:
- Surprise coverage requirements can delay closings.
- The cost of flood insurance can be a barrier to homeownership for many, and your clients should factor the expense into their budget early in their home search.
- Disclosure lawsuits related to a home’s flood risk are more and more common and affect errors and omissions insurance claims, creating liability for the real estate broker.
Flooding is the most common risk to homeowners across the U.S., more than damage from fires, theft, hail, or wind. Despite that, less than 15% of homeowners have flood insurance, according to the Insurance Information Institute. Many homeowners who aren’t required to have flood insurance for a federally backed mortgage choose to opt out of this important coverage. This situation, referred to as “the flood insurance coverage gap,” risks significant financial loss to millions of homeowners and heavily impacts both the mortgage and real estate industries.
You can use flood data to your advantage and avoid awkward “you never told me” conversations with clients. You’re a trusted source of information about a home purchase, and if you arm consumers with the following information, you can communicate better with them and avoid last-minute surprises about flood risk or the cost of insurance.
- Choice: There are policy options outside the National Flood Insurance Program. Private flood insurers often offer better coverage, pricing, and terms, and they’re available in all 50 states and Washington, D.C. Pennsylvania, like some other states, maintains a database of private flood insurers, and many are approved under federal law as proof of insurance to banks and lenders at closing.
- Risk level: Many homeowners significantly underestimate their property’s flood risk. There is often some level of risk even in zones where flood insurance is not mandatory. Flood Factor, a new tool that launched this past summer in collaboration with realtor.com®, provides a free risk assessment for any property. Realtor.com® now displays a link under a property’s address that shows the home’s Flood Factor rating and a flood insurance cost estimate.
- Coverage gap: Homeowners insurance does not cover building damage from flooding, so home buyers need a separate policy for flood insurance. It’s also important for buyers to consider contents coverage to replace damaged personal belongings.
- Price: Consumers often think flood insurance is expensive when, in fact, it can cost as little as a dollar a day. Running an early quote at NeptuneFlood.com, MyFloodInsurance.com, or TryFlood.com might help take the stress out of choosing a provider.
- Lending requirements: Closings can be delayed if consumers learn late in the transaction that their lender requires flood insurance. Flood Factor, realtor.com®, and many private flood insurers provide an instant determination of the flood zone of the property. Consumers can also plug an address into the FEMA website.
- Disclosure: While every state requires sellers to disclose known property defects, including past flood damage, less than half go beyond that. You can minimize the risk of E&O claims and legal liability by having more informed communication with buyers before the purchase is completed.
Real estate professionals are a critical source of information for homeowners and buyers. Positioned at the front of the homebuying process, practitioners have a unique opportunity to help solve the major issue of financial exposure to flood risk. Reputable agents can turn flood risk into an asset by being a knowledgeable guide so home buyers can properly assess their risk and understand the cost and importance of flood insurance.