Flood Insurance: What Buyers and Sellers Need to Know

How Does Flood Insurance Work

What to Know About Flood Insurance

Real Estate flood insurance is probably something that is not on your radar if you have never lived in a flood plain. For homeowners who do not live directly in a flood zone, flood insurance is more than likely something you have never given a second thought about.

Many homeowners may not even realize that their standard homeowner’s insurance policies do not cover the home in the instance of a flood.

If you are buying for selling a home and the property happens to be in a flood zone you are without question going to want to know all the ins and outs of real estate flood insurance!

Flood insurance, which is provided by the federal government through the National Flood Insurance Program (NFIP) through private companies and agents, is a valuable asset for nearly any structure. Here is some background to help people understand the benefits of this type of protection and what they should know about it.

Buyers and sellers of homes should both be keenly aware of how flood insurance works!

Who Should Buy Flood Insurance?

Shockingly, an estimated 25 percent of flood insurance claims come from homes located in a medium or low-risk flood zones. This is because while floods are commonly caused by rising water, such as lakes or rivers, they can also be due to melting snow, significant amounts of rain, hurricanes, water backup, and other everyday household experiences. Without flood insurance, the damage caused by the water will most likely have to come out of the pocket of the homeowner. This is why owners should carefully consider buying flood insurance, even if they are in a low-risk area.

On the other hand, for those who own homes that are in a high-risk area, it should not even be a question of if they are going to get flood insurance. On the maps of Flood Insurance Rates, those who are in the high-risk zones stand an approximate one in four chance of being flooded over the course of the life of the mortgage. With such a high risk, flood insurance can end up being a huge lifesaver when it comes to repairing the home after an unfortunate flood.

Anyone who lives in a community that participates in the NFIP can purchase flood insurance. Those who live in Coastal Barrier Resource areas or Otherwise Protected areas are not eligible to purchase National Flood Insurance. Homes or buildings that are entirely below ground or out over water are not covered either. These people should research and discuss with their realtors to learn the best ways to protect their homes.

Understanding How Flood Insurance Works

Flooding Real EstateReal Estate flood insurance is a separate type of insurance from standard homeowners’ insurance. There are approximately ninety different private companies as well as 60,000 private insurance agents who sell National Flood Insurance and who can help supply policies to those looking to purchase an agreement. The cost of the flood insurance policy will vary depending on the year and type of construction in the home as well as the homes location and estimated flood risk.

Homeowners should be aware that when they purchase real estate flood insurance, there is a thirty day wait period before the policy goes into effect. This means that homeowners can not buy insurance because they hear on the news that the storm of the century is coming straight towards them. If a flood occurs and damages the home within that thirty day wait period, the home will not be protected.

On the other hand, if the homeowners purchase a flood insurance policy while they are taking out their mortgage, then the thirty day wait period does not apply. That is why it is best to buy flood insurance in the beginning rather than waiting to see if it is going to be necessary. Waiting on buying the policy places the home at unnecessary risk. Some mortgage lenders will make real estate flood insurance required for the loan, in which case the lender may escrow the premiums to ensure coverage.

Benefits of Real Estate Flood Insurance

Many homeowners mistakenly believe that floods will not happen to them, and if it does, their homeowners’ insurance will help. Unfortunately, as previously discussed, everyone is at risk for floods and homeowners insurance policies do not cover flooding. Another misconception is that the federal government will help should the flooding be caused by some natural phenomenon. This is also not true unless the president declares a disaster zone. Real Estate flood insurance offers homeowners peace of mind, knowing that they will be covered should water cause damage to their home.

Cleaning up after a flood, or any home water damage, is a trying experience. Water in the home quickly causes mold issues and even structural damage in just a few days, and it can be tough to dry out the area completely. Often anything that was in the flooded area, including boilers, hot water heaters, washing machines, and more are damaged if not destroyed. Bad flooding can require calls to professional restoration specialists. Flood insurance helps homeowners tackle the cleanup and repair costs so that they do not have to pay entirely out of pocket.

What can sometimes be troublesome about the need for flood insurance is when a flood map changes. In a recent home sale in Franklin Massachusetts, the seller was never required to have a flood insurance policy. During the time of home ownership, however, the flood maps had been changed creating the need for the buyer of the property to purchase flood insurance to get a loan. As you can guess the buyer was none too happy to find out they had this unexpected out of pocket expense.

The seller realizing the could potentially lose a sale agreed to contribute a relatively large chunk of funds to satisfy the buyer.

Home sellers need to be aware of the steps that must be taken to protect their property, as well as to sell their home in the future.  The FEMA flood maps changed in 2013 along with the phase out of subsidization of insurance rates for the following types of properties in flood zones:  second homes, multi-family homes, commercial and properties that have experienced recurring flood damage above the value of the building.

If you happen to be lucky enough not to have a mortgage on your property, the need for real estate flood insurance may not have crossed your mind.  In all the years of living at your home,  you may never have thought about a policy for flood damage.  If you are thinking of selling your property shortly, however, it is critical to know what the insurance costs will be.

While you may choose not to carry this insurance, the next buyer will almost certainly require to have it.  If the purchaser of a home in a floodplain has to get a mortgage, which most buyers do, the lender will mandate flood insurance on the home.

The amount of flood insurance that is required will become crucial as it will have an effect on the overall value of your property. Is the cost only going to be a few thousand or will it cost the buyer tens of thousands? This is a key question you should have the answer to before you list your home for sale with a Realtor.

Recent News About Flood Insurance

Flooding Cartoon Real EstateOver the past year, there have been some developments in the National Flood Insurance Program. In 2012 the president signed into law a bill that reauthorized the program, which helped to re – energize the real estate market in areas where flood insurance policies are required; as there had been various disruptions in the areas that required the federal guarantees.

The bill also:

  •  Made flood insurance more available and affordable for those who needed the insurance
  • Introduced some new provisions, such as a method for establishing responsibility between the flood and wind insurance providers when it was difficult to determine what precisely caused damage to a home
  • Redrew the flood maps used to determine a home’s flood risk
  • Established an independent appeals board for individuals and communities looking to challenge the maps
  • Guaranteed that a homeowner who is successful in his appeal of the maps will be reimbursed for related costs

Owners should also be aware that in some areas the subsidies that helped people afford real estate flood insurance are being phased out. The people primarily affected by the loss of the subsidies are those who live in older structures known as Pre-FIRM structures because they were built before the first flood maps were drawn. Not all Pre-FIRM properties will be affected. The majority of the changes will influence the insurance rates of those residences that are not used as primary residences, business properties, and properties that have experienced severe and repetitive loss due to flooding.

Real Estate flood insurance is a valuable asset for those who own homes or businesses. Even those who do not live in a high-risk flood zone face the threat of flooding, and water damage can devastate a building. Learning about how flood risks affect the local area and discussing the matter with the real estate agent can help homeowners make wise decisions about flooding and help protect their families and assets.

Other Real Estate Flood Insurance Resources

Use these additional real estate flood insurance resources to make an informed decision when buying and selling a home. Hopefully, you now have a better understanding of how flood insurance works.


About the author: The above Real Estate information on what you need to know about flood insurance was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 29+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

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  1. says

    very good and clear information. It is easy to read and understand. Thank you Bill for your educate the consumers and at the same time our community ( Realtors and Real estate people)

    • says

      Thanks Gloria I am glad you found it useful. As you know there is lot swirling around at the moment when it comes to flood insurance. It is a good idea that buyers and sellers have a handle on it.

  2. says

    Thanks for such an informative article. I haven’t work much with flood insurance being in New Mexico but after the massive flooding we had last September more buyers are interested in getting it, or at least learning about it. This will be a great starting article for me to give to them.

    • says

      Thanks for the compliments Chris. It is funny how you become aware of flood insurance after going through a terrible storm. It makes you realize how important having it becomes.

  3. Glenn Ferguson says

    Very informative Bill and hopefully more owners will accept the importance of getting flood insurance to protect their investments.

  4. AccuFlood says

    Bill, is there a compendium of State’s seller disclosure requirements with regards to flood insurance? For example, when putting a house on the market, which states require the seller to make a flood determination or a disclosure of potential insurance liabilities and which ones are caveat emptor?

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