Flood prices may affect home sales

By Steve Estes

Monroe County got good news on the Washington front this week that it has finally been recognized as being good stewards in flood plain management by the Federal Emergency Management Agency and might be allowed back into the program that can result in flood insurance premium discounts for local property owners.

But those discounts may mean very little in the big picture.

As the result of a bill passed by Congress in 2012, flood insurance premiums are slated to increase for everyone in a flood plain—which is everyone in Monroe County that carries a flood insurance policy—beginning in October.

Following several years of high-dollar disasters across the country into which FEMA has poured billions of dollars, the federal agency will be increasing flood premiums in coastal communities to make them more reflective of the risk.

And that means large premium increases for the 27,000 flood policy holders in Monroe County.

Those first to feel the bite will be ground-level homes, pre-firm homes and new construction.

New homes built won’t be able to buy flood insurance at subsidized rates, but will instead pay the new risk-reflective rates—rates that haven’t yet been established.

Upon policy renewals after October, ground level homes, non-primary residences, commercial properties and rental units will see a 25 percent increase in rates every year until FEMA feels the rates reflect true risk for this coastal community—again rates that have yet to be set.

Primary residences will see a six to 17 percent increase upon policy renewal depending on the flood zone, the number of claims and the height above base flood elevation.

Some real estate professionals believe that the new flood insurance rates will almost completely devalue ground level homes, and will stop folks from buying homes as investment properties where a mortgage is necessary. Flood insurance is required for any loaned backed by a federal agency.

Brian Schmitt, owner/broker of Coldwell Banker Schmitt Real Estate, says he’s not sure exactly what the new policies will mean to the housing market here.

“Flood insurance has historically been more affordable than wind storm insurance and not really a factor in whether someone could afford to buy a house here,” said Schmitt. “Depending on where the rates stop, we might see some deals fall apart when the flood insurance quotes come in.”

The thought process, Schmitt believes, is that the non-coastal communities, many of whom have an option to purchase flood insurance, don’t want to subsidize the high-hazard coastal areas where flooding is a more routine occurrence.

“And I can’t say I blame them for that,” he said.

Property values in the Keys were one of the last to plummet in the country following the real estate crash and ensuing economic downturn in 2007. The market here was also one of the first to rebound, said Schmitt, and is currently rising about one percent per month in average home value.

He says he believes flood rates will have very little effect in the short term on the Keys’ real estate market, “But re-sale of those homes later on could become a concern. If someone buys an investment home with cash and doesn’t need flood insurance, they may well have a buyer in the future that needs a mortgage with flood insurance.”

Schmitt said he feels something will come along in the political arena to ease the sting.

“There’s too much at stake here,” he said. “This is not just a Florida issue, not just a Keys issue. This is a nationwide issue and the coastal communities are a sizable portion of the population.”

He says that he, like other real estate professionals, is unsure why flood rates would rise so significantly since property owners can only buy insurance on the first $250,000 of the property’s value.

Representatives in other areas of the country have already begun the fight against rapidly rising flood premiums.

Sen. Mary Landrieu, D-La., has introduced legislation that will delay flood premium increases at least temporarily.

Under the 2012 legislation authorizing rate increases, the upward spiral for premiums wasn’t supposed to begin until the Federal Emergency Management Agency had conducted an affordability study to determine the effects of double or triple premiums on policy holders.

That study would reportedly take two years to complete, and Landrieu’s bill would block rate increases for six months after completion of that study if the study determines that increases would be bearable by the rate payers.

Landrieu aides say that the study will give Congress the information it needs to overhaul flood insurance in a way that makes the program sustainable for the nation while not putting it out of the price range of the homeowner and potentially forcing another round of home foreclosures just when the market is beginning to stabilize in many areas, and such as the Keys, rise.

Landrieu’s bill would also eliminate the provision that ends subsidized flood insurance when a property is sold. She claims that provision would make homes in high-hazard areas unsellable in the future due to flood premiums.

She is also seeking to strike a provision that prohibits the rebuilding of community facilities destroyed by a disaster when that facility is in a high-hazard area.

All of Monroe County is in a high-hazard area. The latter provision could prevent the rebuilding of many community facilities in the event of extensive flood damage. The Murray Nelson Government Center in Key Largo is a waterfront property. The Big Pine Community Park is a waterfront property.

“Just about every community facility in the Keys would be considered in a high-hazard area,” said County Attorney Bob Shillinger.

He said he has not yet studied the legislation to be able to determine what the overall effect of that provision could be on Monroe County, but plans to update the Board of County Commissioners in the near future on the bill’s ramifications locally.

Landrieu said she is concerned that the premium increases could destroy coastal communities and is calling for rapid consideration of her bill by both houses of Congress.

Pundits believe Landrieu will run into opposition from lawmakers in non-coastal communities who believe that the much higher rates are necessary to make FEMA’s disaster programs more self-sustainable.

FEMA’s primary source of income is flood insurance premiums. It does not subsidize earthquake or tornado or blizzard insurance, but pays out for disasters of those types.

According to John Isaksen, broker for Isaksen Insurance on Big Pine Key, at this point there is very little property owners can do to fight the potential increases other than rid themselves of mortgages that require the policy or join in the nationwide fight against rising premiums.

“Your only recourse right now is to pay off your mortgage. No mortgage, no need for flood insurance,” he said.

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