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The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.

Are You Ready For the Flood Increases Hampton Roads is Expecting?

The Biggert Waters Insurance Reform act of 2012 is triggering flood rate increases that will greatly affect property values for the next few of years.

Over 20% of homes in high risk flood zones will have an immediate significant impact.

So which homes are being affected? The act requires the Federal Emergency Management Agency to phase out all insurance subsidies. The largest group of property owners that have been benefiting from these subsidies are homes that were built in high risk flood zones before the creation of the original federal flood insurance rate maps and building standards, also known as pre-firm homes. For most communities these are homes built before 1975. Hampton Roads has over 100,000 subsidized pre-firm homes, and will immediately be impacted.

If the home is the property owner’s primary residence and was bought before the act was passed on July 6, 2012 they will maintain their subsidized rate as long as they own the home and it remains their primary residence. These subsidized rates, however, are expected to increase 10 to 17 percent per year. If the property is a business or a secondary or rental property and was bought before July 6, 2012, then the rate will immediately increase 25% per year until the rate reaches the unsubsidized rate. In some cases the unsubsidized rate will not be much higher that the subsidized rate, but approximately 80% of the time the unsubsidized rate will be 50 to 200% higher or more. The most concerning part of the act is that anyone that bought their property after July 6, 2012, primary or not, will immediately move to the unsubsidized rate at the next renewal.  There are thousands of people that were approved for home loans based on a certain flood payment per month and that rate in most cases will significantly increase.

This act will have an effect on property values and real estate transactions.  No matter the situation, if a previously subsidized home is sold, the new owner will pay the unsubsidized rate. What makes this difficult is that in many cases the real estate agent will not know what that new rate will be and may not have an elevation certificate, which is required for obtaining the full risk rate. How is an agent supposed to determine the listing price of a home when the flood rate could range from $40 per month to $400 per month or more?  All other things being equal, a home with a $300 per month flood rate will be much less valuable than a home with a $50 per month flood rate because that additional $250 per month would create a lot of buying power if it were applied toward principle and interest.

Agents can no longer assume that whatever the current property owners are paying for flood insurance will be what potential buyers will pay.  Realtors that are not prepared for this transition are set up to be weeks into transaction only to discover that the buyer will have to pay much more than the existing owner for flood insurance.  At that point, the buyer may not even qualify for the loan anymore. In the mean time, the property will have been off the market for weeks.

Conversely, agents that are aware of what is going on will face less surprises and be better prepared to give good advice to their buyers and sellers. Partnering with a reliable insurance agency to help the agent understand which of their clients will be affected by the act and which will not is a good idea.

Hampton Roads is blessed have the Ocean, Chesapeake Bay and their tributaries, but in many cases there will be a price that owners will have to pay to own property near them. There has been an increase in weather related catastrophes, and adjusting flood rates to make the Flood Insurance Program more sustainable is a necessity. The transition will be difficult for property owners and real estate professionals, but the ones that are armed with the knowledge of the changes will be best prepared to weather the storm.

This post was submitted by Drew Monroe, President of Prosper Insurance Group

About The Real Estate Group

The Real Estate Group (TREG) "Partners in Excellence"

The mission of The Real Estate Group, LLC is to be Hampton Roads finest provider of real estate services. Our goal is to create a company that provides absolutely the best service for our customers by fostering an environment of teamwork and a common vision. The Real Estate Group, LLC consists of an accomplished team of skilled professionals who take pride in their work and their company. We work hard to go beyond the expectations of our customers, agents, and employees.