Flood Insurance/FEMA

Another valuable report in the Sunday edition of The Press of Atlantic City regarding flood insurance. Click HERE for link to article.

A few key points:

1) Flood insurance rates were set to increase prior to Sandy due to the Biggert-Waters Act passed last summer.  In order to sustain the National Flood Insurance Program, the Federal government will phase out rate subsidies currently in place.

2) Under the Biggert-Waters Act, rates for primary home owners will remain subsidized until the house is sold or ownership is transferred.

3) Second home owners and businesses built prior to standardized flood maps (typically before 1982, and if structure is lower than current elevation code) will see rate increases as high as 25% each year until the full cost is reached. There is an effort by New Jersey representatives to reduce this rate to 12.5% (and therefore phase out the subsides over a longer period of time).

4) FEMA estimates that 81% of flood policy owners already pay full cost. However, we are hearing from insurance agents that a 10% increase is likely across the board for all policy holders.

My perspective as a real estate agent:

1) The high land values at the shore have fueled a “tear down” environment for many years.

2) Construction codes in Avalon and Stone Harbor require a property to be brought up to code (including elevation) if the renovations exceed 50% of the value of the structure.  This figure is based on the assessed value of the building…not the land.  Therefore a homeowner has to decide if the cost to elevate could be better spent toward a brand new structure.

3) I don’t expect higher flood insurance costs for the older structures to hurt values- because we already focus on the land value.  However, the insurance cost may force the buyer to make a decision sooner rather than later regarding elevating or building new.