New Flood Insurance Rules October 1st, 2013.

 On October 1st the Biggert Waters Flood Insurance Reform Act of 2012 has big changes affecting Real Estate in Flood Plains. The first thing to learn is that ALL Real Estate is in a flood plain, just some are rated with higher risk than others. For our purposes in Real Estate we use the 100 year flood plain as the standard, it spreads the risk of a flood effecting it at 1% per year, but there is no guarantee it won't happen in back to back years, that is simply the risk pool.

1. What is the Biggert Waters Flood Insurance Reform Act of 2012?
2. What does it do?
3. What does this mean to you as a REALTOR and to your clients on buying and selling homes?

What it is an increased attention to flood insurance rates and the elimination of Federal subsidies of flood insurance in flood plains.

 What it does, is any property in a 100 year flood plain will starting this year have a 25% per year increase in flood insurance premiums EVERY year until the premiums reflect full risk rates. To assess full risk rates, the property owner will be required to produce to their insurance agent an Elevation Certificate to show the level of risk the property faces. In other words, that 25% rate increase annually will continue forever until that Elevation Certificate is produced. That is what happens to someone who continues to live in or own their home.

If there is a change of ownership, the policy lapses, there is a change in risk, or there is substantial damage or improvements on a building the policy rate will be required to immediately go to full risk premium instead of the 25% per year increase. This will require that Elevation Certificate to be produced at that time. So if you have a client who is selling or buying a home in a 100 year flood plain, it would be advisable to get the Elevation Certificate done so that you don't have the deal blow up in the 11th hour due to cost of flood insurance policy.

Flood Insurance Rates in a High Risk Zone (a zone beginning with the letter A-V) are based on a building's elevation above, at, or below the BFE (Base Flood Elevation).

These costs could prove to be a very big deal, so you want to be prepared for them. For instance under this law, if you have a 250,000.00 one story single family home building only no contents with a standard National Flood Insurance Program deductible in a moderate to high risk zone depending upon where the first level begins in comparison to the Base Flood Elevation or BFE (100 Year Flood).

• Built 4' below Base Flood Elevation = 9,500.00/year.
• Built at Base Flood Elevation            = 1,410.00/year.
• Built 3' above Base Flood Elevation  =    427.00/year. 

Generally, in high risk zones, the higher above the BFE a building is located, the lower the insurance premium. The Elevation Certificates provides the documentation necessary to make that determination. In moderate to low risk zones (those beginning with letters B, C, or X, rates are not based on elevation, so an Elevation Certificate may not be needed to determine your premium.

How do you get your Elevation Certificate?

1. Many municipal governments keep elevation information on file. Talk to local floodplain manager if your properties elevation information is on file. If so, the community floodplain manager is authorized to complete the Elevation Certificate for you.

2. If your information is not on file, you might need to hire a State-licensed surveyor, Architect, or engineer to complete an Elevation Certificate. Depending upon your location and the complexity of the job, the cost of a surveyor can vary from 500.00 to 2,000.00 or more. You might want to shop around to find out what they offer.

3. Once you receive your Elevation Certificate provide one copy to your insurance agent and keep a copy for your records.

This new law can and will be something you will be dealing with, hopefully this blog will help you understand better what you and your clients will need to do.

For more information from an insurance specialist on this topic you can reach out to insurance@abilityplus.com or to their website at http://www.abilityplusins.com/ .

Links you can go to for more information:

National Flood Insurance Program Help Center: 1-800-427-4661.

www.fema.gov/fema/csb.shtm

http://www.fema.gov/flood-insurance-manual (May 13 Full Version)

http://www.nfipiservice.com/Stakeholder/pdf/bulletin/w-10345.pdf (October 2013 Flood Insurance Manual Revisions).

http://www.fema.gov/media-library/assets/documents/34620 )October 2013 Specific Rating Guidelines and Actuarial Assumptions.)