What percentage discount is appropriate for a home that is determined by FEMA to be in a "high risk" flood zone?

Asked by sl1200, Toledo, OH Wed Mar 6, 2013

I made an offer on a house that was accepted. I then learned that the house is in a "high risk" flood zone. I also learned that I will be required to buy flood insurance. The cheapest rate I have been quoted is $700/year with a $5000 deductable.

If I decide to go through with this and negotiate a lower price for the home, what would be an appropriate percentage discount (off of the selling price of the home) to come back and ask the seller to give me (5%, 7%, 10%, etc.)?

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Jim Beatty, , Toledo, OH
Wed Mar 6, 2013
You might want to talk with the flood plain administrator for the county where the property is located and get his input, as well as the input of ODNR.

I've built a number of homes for clients on lots that were in the 100 year flood zone and would not do so for my personal residence.

But don't let my personal bias affect your decision. Get the facts yourself. Remember too that while the insurance is $700 per year NOW, those don't usually come DOWN over time.

As far as your valuation question, I don't think it's that simple.

You don't comp a property in say, West Toledo with one in Ottawa Hills.....you comp like properties.

In other words, you comp a flood zone property against another flood zone property.

Good luck, but do check with the flood experts before making a decision.

Call the county building dept where the property is located to find out who that person is in that location.
0 votes
Connie Johns, Agent, Maumee, OH
Wed Mar 6, 2013
Short answer....all equal....same type of construction, exterior facing, windows, roofing age, mechanicals age,, square footage, central air or not, decorating expenses, window coverings, foundation, flooring type, landscaping, lot size, they are comparable...worth the same....one just comes with required flood insurance
0 votes
Yep, that's correct. All else being equal, how much more should I pay for a comperable property in a flood zone? Approximately...
Flag Wed Mar 6, 2013
Connie Johns, Agent, Maumee, OH
Wed Mar 6, 2013
Sorry about the incomplete response my computer decided to freeze up...

It is difficult to give you any kind of answer without really knowing the specifics. If all else being equal, my opinion would be that the property NOT requiring flood insurance would be the better choice both for your personal pocketbook and for resale. (although floodplains do change from time to time) Floodplains are not always determined by what we SEE as nearby water, there are many contributing factors, underground rivers, elevation, watersheds, etc. Your REALTOR should be able to pull up comparables for you, (considering the zip code my quess would be more than 2) to help you make an informed decision. Again, all things being equal, type of structure, exterior (vinyl, aluminum, brick, wood) square footage, lot size, garage size, number of bedrooms and bathrooms, school district, etc. the determining factor is whether or not you want to tack flood insurance on to your annual expense for the property.
0 votes
Connie Johns, Agent, Maumee, OH
Wed Mar 6, 2013
I truly stand your frustration in attempting to get a definitive answer on your question.
0 votes
sl1200, Home Buyer, Toledo, OH
Wed Mar 6, 2013
I'll try it, again: 2 comps, one has a small creek in back (and is deemed a flood-zone property), the other home is 2 houses down, is no where near the creek and is not in the flood zone.
All else being equal, how much less do I pay for the non-flood-zone, comparable home?
0 votes
Connie Johns, Agent, Maumee, OH
Wed Mar 6, 2013
Larry Cain's answer was spot on for you. There is no set discount to ask for, it may have already been considered in the listing price or accepted offer price. Best of luck to you, whatever option you decide upon.
0 votes
It was not considered in the listing price. It was not disclosed, and was a complete surprise to all parties.
Flag Wed Mar 6, 2013
The Larry Ca…, Agent, Toledo, OH
Wed Mar 6, 2013
It should have been disclosed to you on the "Residential Property Disclosure" prior to the offer being made unless you were buying from a For Sale by Owner who did not understand their obligation to disclose this. Normally, you could terminate the offer based on this but on the other hand the seller may have felt that this situation was already factored into their asking price. There is not a "cut and dried" amount to negotiate for the situation but I would try to negotiate several years of the cost into the offer and failing that, I would move on to another home.
0 votes
Thanks, Larry. The flood zone status was not factored into the selling price, as the seller claims that it was also a big surprise to them. FEMA changed the status in 2011, and the seller claims that they did not receive notification. So, no one really anticipated being in this situation.
Flag Wed Mar 6, 2013
sl1200, Home Buyer, Toledo, OH
Wed Mar 6, 2013
Update:

Based on Ron's response, apparently I did NOT provide enough information:

NO, the seller did not disclose the fact that the property is in a flood zone.
NO, I did not know that it was in a flood zone when I made the offer.
YES, I may exit the contract based on the fact that it is in a flood zone.

My options (provided by my realtor) are the following:

1) Cancel the contract and walk away.
2) Negotiate a better selling price on the home.
3) Do nothing and just pay the extra $700/year in flood coverage.
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Mar 6, 2013
Is it possible that you are already enjoying a discount?
Did your Realtor take that into consideration when he did the CMA?
Were the Comp houses also in the Flood Zone?
Did your Realtor include CONTINGENCIES in case you found something like this?
If you do not have a safeguard contingency, you can't just demand a re-negotiation; you are under CONTRACT!

What does your Realtor say? That's why you have a Realtor!
0 votes
Yes, I already spoke with my realtor (in fact, he suggested that I may re-negotiate or simply walk). The contract says that I can indeed get out of it if the property is in a flood zone. The seller did not disclose the fact that the house is sitting on a flood zone and it was not factored in when the offer was made and accepted. Given that, what would an appropriate discount be (in terms of percent)?
Flag Wed Mar 6, 2013
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