Q: In a flood zone, what should be disclosed to potential buyers?

A: While laws are different in each state, common law in the United States mandates that the seller of any real property is required to disclose all facts that are material, that affect price paid and desirability by a potential buyer. This being said, prudence dictates that the seller discloses in writing to all potential buyers before close of escrow that the listed parcel is in a flood zone. There is no penalty under the law for over-disclosing matters pertaining to a listed property. The seller needs to ask himself or herself the question, “If I was the buyer, would I want to know if the listed property was in a flood zone?” When in doubt, always disclose in writing.

Q: Who provides the report in the disclosures, and how much detail is the seller responsible for?

A: If the property being sold has flooded in the past, the sellers will need to disclose this water damage in writing prior to closing escrow. When the buyers learn that the home they’re purchasing is at risk for flood, they will need to determine what type of flood zone they’re in, whether flood insurance is mandatory, and if it’s something they want to buy even if it’s not mandatory. They’ll also need to inform their mortgage lender, if the lender is not yet aware of the flood zone risk, as it may affect the terms of the loan.

Note: Lenders will usually check data sources if the property is in a flood zone and will and will inform you that the this is insurance will be required as a condition of obtaining your loan.

Q: What is the National Flood Insurance Program?

A: The National Flood Insurance Program (NFIP) is a national program that allows participating communities to purchase flood insurance from the federal government. Buyers can obtain flood insurance from other insurance companies, but NFIP ensures that all buyers have at least one coverage option with their policy.

Q: What is the difference between a low-risk and high-risk flood zone area?

A: According to FEMA, there are three main categories of flood risk with multiple subcategories.

The main three groups are:

• Moderate to Low Risk Areas
• High Risk Areas
• High Risk – Coastal

These categories and their subcategories are sorted into their own risk categories based on historical flood data, proximity to levees, annual rainfall, average flood depths, and likelihood of a storm. Lenders and insurance providers will use this information to assess insurance requirements for a property.

Q: Does the seller have to provide flood insurance or is it the buyer’s responsibility? Does a buyer need to have flood insurance in place to obtain a loan?

A: The seller does not have to provide flood insurance to the buyers. The buyers, however, must have flood insurance in place prior to closing escrow. In some instances, the buyer may also be required to pay an entire year’s worth of flood insurance premiums prior to close.

Q: Will some lenders not lend for homes in a flood area?

A: Many lenders will still offer loans for a home in a flood area, but the contingencies on purchasing a home in certain flood areas may include these provisions:

• Mandatory purchase of flood insurance either from the National Flood Insurance Program (NFIP) if they qualify or from a private agency
• Homeowner must pay one year’s worth of premium payments at closing

Q: If a property is purchased while not in a flood zone, but then the government later includes it in a flood zone, does that impact the property value?

A: Yes. If a home is suddenly included in a floodplain, the value of that home will decrease. A new assessment on the property will need to be conducted after it is included in the floodplain and placed in a certain risk zone (a low risk zone versus a high-risk zone may affect the value differently).

Q: What if a property borders a flood zone but isn’t in it? Should the proximity to the flood zone be disclosed?

A: While not ‘required’, it is highly recommended. If you’re a seller and know that the home is close to, but not yet included in, a flood zone, you should disclose this in order to avoid potential liability down the road. The risk is that if the buyers purchase the property and then six months later discover the property is now included in a floodplain (and that their insurance will go up while their home value goes down), they may come after you (the seller) claiming that you should have disclosed this prior to the purchase. Once again, it’s always better to over-disclose this type of known information in a real estate transaction than to under-disclose.