Flooding Can Put Unsuspecting Home Buyers Financially Underwater

Flooding can quickly turn a dream home into a nightmare. Home buyers should have the right to know if the house they are about to purchase has previously flooded. However, if home buyers are looking in a state that fails to require a seller to disclose a property's flood history, then unsuspecting home buyers could face financially ruinous consequences.

In fact, a new study from Milliman found that a home buyer can incur tens of thousands of dollars in flood damage costs over the course of their mortgage, if they purchase a previously flooded home. The study assessed the potential impact of prior flood damage on home buyers in 25 states across the U.S. The Natural Resources Defense Council (NRDC) selected states for the study that generally lack strong flood disclosure laws, which require past flood damages be disclosed in real estate transactions.

Undisclosed Flood Damages Cost Home Buyers Tens of Thousands of Dollars

Floods are costly. Homes that have experienced flooding in the past are more likely to experience flood damage in the future, meaning buyers of previously flooded homes could be on the hook for tens of thousands of dollars in repairs.

Climate change is expected to increase flooding due to higher sea levels and more extreme rainstorms. This will likely increase the amount of expected flood damage for homes that have already been flooded previously. Over the course of homeownership, these costs can become significant expenses.

According to the study, over a typical 30-year loan period for a mortgage the buyer of a previously flooded home can expect to incur on average more than $55,000 in flood damages. Given an estimated 4 percent of homeowners in the United States have any flood insurance coverage, states with inadequate or non-existent disclosure laws are putting unsuspecting buyers of previously flooded homes at substantially more risk of paying out of pocket for unexpected flood damages.

The table below combines disclosure grades created by Natural Resources Defense Council along with estimated average flood costs as calculated by Milliman. The states are ranked by their estimated average cumulative flood cost over a 30-year period based on the state average annual loss for a previously flooded home under the Standard Scenario.

Source: NRDC disclosure grades based on NRDC Flood Disclosure Score Card.Estimated average flood cost from Milliman, "Estimating undisclosed flood risk in real estate transactions."

* Milliman developed their estimates utilizing data from the National Flood Insurance Program's OpenFEMA policy and loss data, as well as the KatRisk SpatialKat Flood and Storm Surge Models. Future flood damages were modeled by KatRisk under three different scenarios. The Standard scenario represents the current climate conditions. The Medium scenario is based on the Representative Concentration Pathway (RCP) 4.5 scenario, which is a reasonable estimation of what will happen, if on average, global economies are able to stabilize and begin to reduce greenhouse gases in the near term. The High scenario is based on the RCP 8.5 scenario, which is generally considered to be close to a worst-case scenario wherein global economies progress with a "business as usual" approach. To see the full report, including assumptions and limitations, visit https://www.milliman.com/en/insight/estimating-undisclosed-flood-risk-real-estate

Disclosing Flood Risks

The NRDC believes that home buyers must have a right to know whether a home has flooded before they make what may be the biggest financial investment of their lives.

Given the high cost of flooding, states should not keep homebuyers in the dark about a home's flood history. Strong real estate disclosure laws that require a seller to inform a buyer about a property's flood history and risk would help address this problem.

Home buyers cannot be expected to make good decisions if they are denied information. At a minimum, states must have disclosure laws that ensure that persons selling a property disclose the following information:

• Whether the home has ever been damaged by a flood and the extent of the damage.
• Whether the home is in a floodplain and, if it is, the flood zone classification (100-year or 500-year) of the property and the source and date of this information.
• Whether the seller and/or previous owners ever received federal disaster aid that would require all future owners to obtain and maintain flood insurance on the property and, if they have, the type of aid and amount received.

As sea levels rise and heavy rainstorms become more common, tens of thousands of communities can expect increasing vulnerability to flooding. Home buyers should not be kept in the dark about this risk when choosing where their family will call home.

NRDC

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