Surprise! I need $3,300/yr flood insurance.

55 Replies

I am under contract for a two-family property in New York State. My deposit check has already been cashed and the appraisal was just performed for my FHA loan. I got a note from my lender today letting me know that the property is in a 100-year flood zone and I need flood insurance. This is the first time I am hearing about this.

I got a quote on a policy from my insurance agent and it will cost me $3,300 per year, or $275/month, which eats substantially into my rental profits. Any advice anyone?  

@Tone Church Are you still in any inspection period time? Or does your contract state anything about flood zones?  If you want to bail I would take with your attorney, I'm sure there will be a way out.

Thanks @carolina e. I have emailed my attorney to see what my options are. I’m not sure I want to back out but may like to try to renegotiate my purchase price.

That certainly is a good reason for retrading. On a property in Houston we knew that we were i a flood zone and one that had high winds. We fought against the lenders requirement of full replacement value of 3.2 mil on our 1.3 purchase. Our 11 Cap deal dropped to a 9 cap when we received an insurance quote at $1100 per door on a 62 unit property. Something does sound wrong with 3300 on a duplex. You should be able to get FEMA coverage lower than that.

Sounds like you need to get another quote from a different insurance company. $3,300 sounds really high. What is the purchase price?

Ryan the purchase price is $220,000. I will get another quote.

That may be FEMA. They are increasing rates and remapping. I would check that the flood zone entered is accurate and the property flood mapping is correct and the structure is in the flood zone. If it is borderline I am not sure if a base flood elevation certificate could help the rate. I think 100 year flood plains the most mistakes are made and you have some possibility to reduce cost.

@Tone Church My flood insurance guy has told me that if a property has a history of flood damage, FEMA will pay 100% of the cost of raising the structure up on pilings. If there's no history of flood damage, they will pay 75% of the cost.

You might talk with your insurance guy about that.

@Jeff Greenberg    WE survey everything that we buy in those areas ( Charleston were I am building new homes) as this really affects the resale.. surprising when you do a new survey to find out the maps are not correct.. we never take the maps at face value unless its obvious.. IE right next to a creek or water way...

Sounds like I should

1. Look into getting a base flood elevation certificate

2. Getting my insurance requoted

3. Find out if it has ever been flooded before (who would I ask?)

4. See what the land survey shows

Unless NY offers private flood insurance you’re getting a federal sponsored flood policy regardless of what agent you talk to.
That said not all agents understand flood insurance or how to quote lower levels of coverage with higher deductibles.
Purchase price is irrelevant to how much coverage you have/need - The dollar amount of coverage is based on “reconstruction cost estimate”.
The price of your policy is set on the amount of coverage and the flood zone where the property is located.
Typically if you have coverage equal to or more than the loan amount the lender will accept it.
Just know that if a loss occurs the claim check will have your name and the banks name on it and the bank will cash that check and pay off their loan leaving you owning a wet and damaged property.
Some investors can handle assuming that kind of risk but many others would be wiped out.

@Tone Church I would also encourage you to make sure and still consdier backing out is still an option for you (I'm assuming you can due to inspection still). I really doubt that the flood zone premiums will be shrinking anytime soon. 

Sounds like a disclosure item to me Tone. In CA, this would be sufficient to cancel the deal. That # sounds quite high for flood insurance.

@Cameron Novak has the right idea. Line item 10 on your NYS Property Condition Report asks if it is in a flood plane. What does the one you have from them say?

That looks like an appropriate FEMA rate if this is a A- flood zone.

Maps were re-evaluated after Sandy so area that you may not know will surprise you.

Also private flood has had a shock in pricing after Harvey and capacity was taken by those claims.

Best advice is the elevation certs. By the way flood goes by the property not the owner. Meaning if there is and old elevation cert it would be valid (if you want it to be). But of course the flood elevation probably raised since then, but your lowest elevation did not.

It’s a good free starting point.

@Jeff Greenberg When starting out, i was trying to purchase a package of duplexes ( Houston metro) and didn't realize it required flood coverage. I asked the seller for a price concession when we capped the expense.  No deal .  Im actually happy I passed on that one now ( flooded big time) .  

But now, when looking at deals etc. Thats typically something i will cross check on a FEMA flood map up front. I feel for the more experienced investor retrading on that may not be warranted as it should be on the more sophisticated investor to see what flood zone it is.

Also , in theory, if the guy has a loan on it, the lender should have that required and it might be in the package/financials etc .  Coverage can also be more complex where the current rate is xxxx but then when you go to get it, the only coverage you can get is yyyy so i think that case has merit or flood map redrawing which is a different scenario. 

I definitely side with a newer investor as this is an easy one to mistake ( myself fallen victim to it.... ) but def should be built into a preliminary DD checklist on the deal. 

My old primary residence got included in a flood zone when they redid the maps. I was able to get an survey done with an elevation certificate in order to get exempted from the flood insurance requirement.  I think it cost me about $700 to do so.  Well worth the cost as it would have affected the value of my home to about the tune of $50k.

@Michael Norris we always make sure that besides the lender, we and our investors are also whole.

Cancel the deal and walk away.....

Originally posted by @Tone Church :

I am under contract for a two-family property in New York State. My deposit check has already been cashed and the appraisal was just performed for my FHA loan. I got a note from my lender today letting me know that the property is in a 100-year flood zone and I need flood insurance. This is the first time I am hearing about this.

I got a quote on a policy from my insurance agent and it will cost me $3,300 per year, or $275/month, which eats substantially into my rental profits. Any advice anyone?  

 How was this not disclosed at the sale, does the current owner? not have flood insurance? I am fairly certain in Ohio on disclosure form owner must define if it is a flood zone. 

I have been once pleasantly surprised by this situation, the owner had owned the property outright, they were not aware they were in a flood zone, when I attempted to purchase using financing, the lender sent us a notice with this similar mandate, needless to say, we did not pursue the transaction further as the insurance premium was absurd. 

Conclusion, if you pay cash, you won't have to buy the flood insurance :) 

@Steven Gesis - I am not sure. From what I understand, at least in the state of NY, the seller is not required to disclose this, it is the buyer's and the buyer's agent's responsibility to check whether or not it is in a flood zone. 

@Ned J. - not sure it's quite that easy. Unless I am unable to secure financing, I'm on the hook for my deposit amount. 

@Russell Brazil 0 "I was able to get an elevation certificate in order to get exempted from the flood insurance requirement" - Do you know if it is possible to do this prior to closing on a property? How do I go about getting this?

@Jack Baczek - "I asked the seller for a price concession when we capped the expense." - How did you determine how much of a concession you would ask for?  How much did you offer for the property prior to and after finding out it needed flood insurance?

@Derek Lacy  - "By the way flood goes by the property not the owner. Meaning if there is an old elevation cert it would be valid." - Where would I look for this?

@Mike Cumbie "Line item 10 on your NYS Property Condition Report asks if it is in a flood plane. What does the one you have from them say?" - I never received this from anyone to my knowledge. Who was supposed to send this to me? My real estate agent? I found the form and it opens by saying "General Instructions: The Property Condition Disclosure Act requires the seller of residential real property to cause this disclosure statement or a copy of thereof to be delivered to a buyer or buyer’s agent prior to the signing by the buyer of a binding contract of sale." - Never received this. Somehow, after bringing up my concern to my real estate agent, my mortgage broker, and my attorney, none of them have mentioned this form to me. 

@Zach Quick - "I would also encourage you to make sure and still consider backing out is still an option for you (I'm assuming you can due to inspection still)." - I already had the home inspection and am under contract. Once the bank ordered the assessment, that's when I received paperwork letting me know I needed flood insurance.

@Jay Hinrichs - How much does being in a flood zone affect resale value? Do I need to comp the property against others in the area also in flood zones to figure out if it is already baked into the sale price?

@Charlie MacPherson - "My flood insurance guy has told me that if a property has a history of flood damage FEMA will pay...." Do you know how I would find out this information? I will also talk to my insurance guy about that.

Thank you all for your contributions to this thread. 

If you never received a required disclosure, that may be reason to exit the contract, although you need to read your state's laws to see where you stand.  It may not be the same for investor versus primary?  I'm not a lawyer nor an agent in New York, so no legal advice.  But if so, it would allow you to exit or allow you the leverage you need to negotiate a price knowing it's in a flood zone.  If it has prior flood claims, I, personally, would walk away.  

Years ago, I did negotiate down a property because at the last minute the lender said a tiny corner of the building was in a flood zone so they'd require flood insurance.  The seller dropped the price and paid enough extra closing costs to drop the rate down to cover the escrowed monthly cost of the flood insurance at the time.   I still love the property (especially as new flood maps remove it from the flood zone, if they ever make them effective), but my flood insurance has doubled since then.  Rents have risen to cover, but I wouldn't buy in  a flood zone now unless I can pay cash, no mortgage.   

@Tone Church   i'd just talk to an insurance broker.  I think being in a flood zone is a definite detraction, all else being equal - but if it has a magnificent water view, that will offset the flood insurance.   

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