The past year has seen intense hurricanes in Florida and the Caribbean, hurricane-related flooding in Texas, and wildfires in California, Oregon, and Idaho among other disasters. Storms can affect the real estate market as people leave affected areas. People may be reluctant to move to a storm-damaged area or concerned about storm-damaged homes. It’s one thing to know how to drum up business in a damaged market. It’s another to protect your real estate business when you’re working in a risk zone.
Know Your Risk Zones
We tend to associate certain disasters with particular areas, such as earthquakes in California or hurricanes in Florida, but risk areas are more closely defined. Particular areas in a state, county, or municipality may be designated a risk zone for certain disasters. The first thing to know is where risk zones are.
For floods, you’ll generally turn to FEMA, which maintains the FEMA Flood Find website. There you can get flood designations and reports. FEMA is also responsible for the National Flood Insurance Program. You can stay on top of changes to this program here: https://www.fema.gov/national-flood-insurance-program.
Check with state and local sources about fire risk zones. Fire risk zones affect building codes, so clients may be interested in how that risk factors into costs for repair, new construction or renovation. You should also advise your clients in writing to confirm that the property qualifies for fire insurance, and to confirm potential premiums with an insurance provider. (View our sample disclosure.)
For hurricane or other severe storm risk, ask the seller about any past problems). If the seller has insurance that specifies specific risks, you may need to disclose that to potential buyers. Encourage buyers to talk to home insurers about rates and coverage needs based on any local risks.
Know What to Disclose and Highlight
Some states, such as California, require that real estate agents representing the seller disclose prior to closing if a property is in a fire, flood, wild land, or earthquake zone. As always documentation of disclosure is essential, so if this isn’t part of your standard listing package, it should be. Even if you are not required specifically by state law to disclose that a property is in a risk zone, you should, because you are required in all states to disclose all facts that are material and that affect price paid and desirability of a property by a potential buyer. Damage due to a disaster such as a fire or flood must be disclosed as well.
In addition to disclosures, consider pointing out features that may help mitigate damage. For example, many experts say that a metal or tile roof is a benefit in a fire zone, as is a pool that can be used as a water source if needed. Other things you may want to point out to potential buyers are houses with domed shapes designed for higher resistance to hurricane winds and raised houses designed to weather flooding or storm surges better. New construction built to current disaster codes is a plus. Just remember not to oversell. These features may reduce risk, but don’t guarantee that the home will stay safe.
It’s important to advise buyers to contact appropriate inspectors, contractors, or insurers for specific questions. Use a disclosure form to have buyers sign off that they understand their responsibility to get an inspection or investigate seller disclosures to their satisfaction.
For more questions and answers about disclosure in flood risk zones, see FEMA and Flood Zones: Real Estate Agent Frequently Asked Questions Answered.
Working in real estate in risk zones can be tricky, but people still want homes in many high-risk areas. Know your area. Know the risks. Know how to protect yourself—and know where to turn when faced with an issue that could put you at risk. CRES Real Estate E&O + ClaimPrevent® clients have access 7 days a week to our real estate legal advice team. Just because you help people buy or sell in a risk zone doesn’t mean you have to be at risk.
What question do you get asked most about homes in risk zones? What question should clients be asking that they aren’t?