As a real estate agent, I wear many hats. In working with clients to navigate the ins and outs of buying or selling a home, I share my knowledge of the market, help them find properties and neighborhoods that best fit their needs and lifestyle and walk through the intricacies of paperwork and legal procedures.
But, because my business is located in Florida, many of my clients face an additional consideration: flooding.
It’s no secret that many of the wonderful properties in the Sunshine State are in low-lying, flood-prone areas, or that hurricanes are a seasonal phenomenon.
In this environment, it’s difficult to overstate the importance of flood insurance. Heavy rains can be detrimental to homes in vulnerable areas, and strong storms can wreak devastation.
But when it comes to evaluating different types of coverage — or even the risks specific to an individual property — the options can be overwhelming. So how do you help clients determine what best protects their investment and will give them peace of mind?
Here are a few important aspects to keep in mind when counseling clients on the all-important question of flood insurance:
Know the property
The specifics of where a home is located and how it was constructed have a huge impact on the risk, ultimately affecting costs. Flood insurance premiums are determined by the elevation, type of structure and whether the property is located in a high or low-risk zone, as identified by Federal Emergency Management Agency (FEMA).
If you evaluate where the home falls in terms of these zones, you’ll have a clear idea of what the client can expect in terms of a reasonable quote when he or she begins shopping.
Confirm insurance costs before the deal is done
Even if a client hasn’t yet made a final decision on whether to purchase a home, providing the address to various insurance companies and can help confirm how much the flood insurance will cost.
It is also possible to find out about the flood history of the property, which gives an idea for the future and details potential past structural damage.
Use the FEMA map online, or the local county website, and enter the address to find the zone. Local resources are also usually familiar with flood history.
In short, don’t rely solely on what the current owner of the property is paying for flood insurance as it may not be what the new owner will be charged after closing. Also, remind your client that there is usually a 30-day waiting period from the time the policy is purchased until it goes into effect.
Know that a lender’s flood insurance requirement may be more stringent than federal law
All federal or federally backed mortgages and/or high-risk flood areas require flood insurance. But even if a property is not in a high-risk zone and flood insurance is not required by federal law, a lender may insist the buyer have it.
Changes to FEMA maps can also impact the flood insurance requirement: if an area is rezoned while the property is still mortgaged and is now in a high-risk flood zone, the lender will require the new owner to purchase flood insurance.
Recognize that flood insurance costs may be higher for a part-time home
Flood insurance for properties purchased to rent, or that are unoccupied for more than six months out of the year, can be more expensive.
Vacant land, however, does not require flood insurance even if it is in a high-risk zone. But it pays to determine what flood zone the property is located in if the buyer plan to build in the future, so that there won’t be any surprises.
Homebuyers may look to purchase homes in low-risk flood zones seeking to avoid paying for flood insurance. And yet, more than 20 percent of flood insurance claims are from low-risk zones.
Purchasing flood insurance, or at the very least fully communicating all of the risks and options, is therefore a wise decision no matter what the zone, city or state. Standard home insurance does not cover floods, so be sure to do the homework (and encourage your client to do the same) to ensure this important investment is protected for years to come.