Do you know if your home is in a FEMA Special Flood Hazard Area (SFHA)? Does it make a value difference? I recently appraised a home in which the lot was located in numerous flood zones. In fact, I see this on a fairly regular basis. The answer to the opening question regarding value is that it depends. I know, I know! Appraiser’s always say that! That’s because in most situations in which value is being determined, there are many things to consider.
WHAT IS A FEMA FLOOD ZONE?
Perhaps you are wondering, what a flood zone is? FEMA has designated certain areas to be at higher risk for flooding. The FEMA Flood Maps were created primarily for flood insurance purposes. The flood designations are based upon data called a “flood quantile”. The USGS (United States Geological Survey) measures the amount of water, based upon a cubic feet per second (cfs), during a flood. The USGS.gov explains: “On a given river, the flood quantile corresponding to the 50-year flood might be 10,000 cfs, and the flood quantile corresponding to the 100-year flood might be 15,000 cfs. The estimates of the flood quantities are calculated using actual data collected at the site.”
The USGS collects data to determine the largest floods in a designated area each year. It really comes down to the statistics and the recurrence intervals of floods. If you are in a 100-year flood zone, that means that there is a 1 in 100 (or 1%) chance that a flood of the magnitude determined by the USGS, will take place in any given year. The zones are based upon statistics. So there may be years in which there were two “100-year floods” in a row. Remember, the statistics are based upon the estimated percentage of chance that this type of flood may occur in a given year. Not how many times this kind of flood will take place in a 100 year period. That’s an important distinction to remember.
WHERE YOUR DWELLING IS LOCATED CAN MAKE A DIFFERENCE
Fairly often I appraise homes in which a portion of the property is located in a FEMA Special Flood Hazard Area or Zone. Zone X is not considered to be a Hazard Zone. But it is a zone designation. So that’s why, in this article, I refer to zones other than zone X as being in a “Hazard Zone”. Sometimes there is just a small portion of the land that is in a Hazard Zone. It is important to determine if the dwelling itself is in a Hazard Zone. 
If your dwelling is in a Hazard Zone, there is a higher likelihood that the market value may be affected. If the dwelling is not in a hazard area, but other portions of the lot are, it is less likely that the market value of the property will be affected.
The appraiser has to make this determination by comparing the property being appraised to other comparable sales. Comparable sales in similar situations need to be examined to see if there is any impact on market value. Sometimes there is. However, much of the time, at least in my experience, there is little if any significant impact on market value in this situation.
There are situations in which being located in a FEMA Special Flood Hazard Zone generally does impact value negatively. It is usually in areas in which major flooding occurs often. There are some neighborhoods that are notorious for flooding. The flooding may be from a street’s proximity to a body of water or flooding that is generated from changes in land use.
For instance, a new development may be built in such a way that the rain run-off is inadequately engineered so that excess run-off water flows into surrounding streams and rivers, creating more frequent flooding in neighborhoods. This is especially true in areas that were already designated as being in a FEMA flood hazard zone to begin with.
PROPERTIES WITH WATER FRONTAGE
It is very common for at least a portion of waterfront properties to be in a FEMA Special Flood Hazard Zone. This generally has little if any negative impact on value because of the trade-off in the desired view and water access. Most people realize that if they buy a property that offers water frontage, there is an inherent risk of flooding.
FLOOD INSURANCE
If you are taking out a mortgage on a home, and you are in a FEMA Special Flood Hazard Zone, the lender will require that you obtain flood insurance. Flood insurance from the NFIP (National Flood Insurance Program) is available to renters and home owners if the property is located in a NFIP participating community. If you have questions about flood insurance, call your insurance agent to find out how you can obtain it.
Did you know that flooding is the most common natural disaster in the United States, affecting every region and state? If you are in a Hazard Zone, even if you do not have a mortgage, you would be wise to still have flood insurance.
Did you know that you can request a change to your flood zone designation? If you believe that your property was incorrectly included a FEMA Special Flood Hazard Zone Area, you can submit an application to FEMA for a formal determination of your property’s location and/or elevation to see if it should be in a Hazard Zone or not. If your property is found to not be in a one of these zones, then you may no longer be required to pay for flood insurance.
MARKET VIEWS CHANGE LIKE THE WEATHER
Does it seem like the weather in your area is changing? If you speak to people around the country, and around the world, there is no question that the climate is changing. That being said, flood zones change also. So do the views of people in the market. As the climate continues to change, people’s lives will become increasingly more affected by these changes.
While there may be certain situations in which being located in a Hazard Zone is not currently having any major negative impact on market value, that could change in the future. That’s why appraiser’s have to always look at the most recent data and market reactions to these situations, in order to determine whether or not these locations impact market value.
A FRIENDLY REMINDER FOR APPRAISERS
When performing appraisals for lending, notice what the appraiser must do, as stated in the STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS Number 3 that you will find in Fannie Mae/Freddie Mac forms for lending.
” The appraiser has examined the available flood maps that are provided by the Federal Emergency Management Agency (or other data sources) and has noted in this appraisal report whether ANY PORTION of the subject site is located in an identified Special Hazard Area. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination. “
The appraiser has to document all of the FEMA Zones that the property being appraised is located in. A word of caution. Some appraisal software will automatically insert the FEMA Flood Map Zone, panel number and date into the appraisal report. However, the appraiser must do more than that. The appraiser must analyze the flood map. That is important because, at least in my experience, using this automatic flood map button doesn’t usually insert all of the zones that the subject property may be in, into the report, when there are multiple zones.
I hope that you found this information to be helpful. If you have any questions about FEMA Flood Zones and how they may impact market value, don’t hesitate to reach out to me or another appraiser in your area. Thanks for reading my article! Have a great weekend!
THIS WEEK’S NEIGHBORHOOD VIDEO – TREMONT DISTRICT
Based upon the results on my Twitter survey, it was a tie between the city of Hudson and Tremont. So, I decided to take my video in the Tremont District this week. I took it while completing an appraisal in the Tremont District of Cleveland. The weather was not good that day. Hopefully future neighborhood videos will have nicer weather. I hope you enjoy it. Please leave me a message as to what you would like to see in future neighborhood videos.
Here are some other articles and videos I enjoyed this week! I hope you will also…
The Liar Loan Mentality Was Never Purged From The Home Mortgage System – Housing Notes by Jonathan Miller
Seven years of price increases & my blue kitchen island – Sacramento Appraisal Blog
Why Appraisers? – Birmingham Appraisal Blog
Why The Contract? – Ann Arbor Appraisal Blog
What Does It Mean To Support & Prove? – George Dell’s Analogue Blog
Signs of Foundation Problems – DW Slater Company Appraisal Blog
Why You Should Join an Appraiser Association – Yolo Solano Appraisal Blog
Tips when Talking to a Real Estate Appraiser – Advantage Appraisals Blog
Nice job Jamie. I know some price ranges might be more affected by flood zones in light of the increased fees. An extra chunk of change for flood insurance won’t hurt some owners at all, but it could be a big deal for lower-income buyers.
Thanks Ryan! That is a great point! That’s true in my market also. When affordability is an issue already, things like flood insurance premiums can definitely impact value. Nice point to share.
I agree with Ryan-nice post. Also, I see in my area (same as Ryan’s) that properties that need flood insurance sometimes sell at a discount because of the added cost separate from the risk of flooding. As you say, sometimes there’s no impact at all.
I’ve also seen recently (last week) that the automated form fillers sometimes will have different flood zone information than that pulled by the lenders. I was asked to verify the flood zone info for a proposed construction on a lot yet to be assigned a street address. My form software, alamode, allows me to place on the subject’s location on a map prior to pulling the flood info. It pulled the right panel but the flood cert provided to the lender had the wrong panel. I used the FEMA website to document the error.
https://msc.fema.gov/portal/home
Thanks Joe! Yes indeed! You and Ryan are spot on with your comments. I use alamode and have had the same thing happen. It also used to happen to me when I used Clickforms from Bradford. I think it is a common thing we need to just do our due diligence on. Using the FEMA website is a good idea to verify this data. Great point!