Flood Insurance Changes: 6 Things South Carolina Real Estate Agents Need to Know

In an attempt to salvage the National Flood Insurance Program (NFIP) and their roughly $30B deficit, Congress passed Biggert Waters Flood Insurance Reform Act in July of 2012.  While the Act is currently in place and changes have already taken place, most of the Act’s changes that will affect many homeowners and business owners will become effective October 1^st, 2013.  As a real estate agent, your clients will be affected in some way or another; both buyers and sellers.  Below is a brief and [hopefully] easy to understand breakdown of the changes to the program and how your real estate clients might be affected.

The Nuts and Bolts

1.                 Full Risk Rates for NEW and LAPSED Pre-Firm Flood Policies

What this means is that when a buyer purchases a home, that is a pre-firm home, then they will not be able to acquire the subsidized rates from the seller.  This use to be a major benefit.  This may cause a significant impact in the buying capacity as well as the market price of a home because the flood insurance premium could go from $1,000 annually to $6,000 annually, as an example.

What are Pre-firm homes?  Pre-firm homes are homes built prior to the flood insurance program going into effect for a specific community.  Post-firm homes are homes built after the flood insurance program going into effect, so if your home was built in 1990 then you are post-firm.  The dates below are when each community entered into the flood insurance program:

• Charleston County- 4/27/71
• Berkeley County- 9/30/1983
• Dorchester County- 1/6/1982

How do you know what the full risk rate is and how will you know what your premium will go to?  Read further…

2.                 New elevation certificate requirement on All policies

The only way you can find out what the full risk rate will be is by having an elevation certificate completed.  Starting 10/1/13, ALL NEW flood applications in an A or V zone will be required to have an elevations certificate regardless of the year built.  Elevation Certificates did not used to be required on Pre-Firm buildings, now they will be.

Elevation Certificates typically cost anywhere from $300-$700.  However, Mappus Insurance Agency has negotiated a preferred flat rate of $325 with Atlantic Surveying, Inc. Please visit our Flood Insurance page on our website, www.mappusinsurance.comto print off your coupon.

3.                 Rate increases across the board for all policies

Current policies will see increases on average of 10% annually.  This includes both pre and post firm homes.  Most post-firm homes will see very minimal change.  For current pre-firm policyholders, you will continue to receive the gradual increase till you reach the full rate.  Again, the only way you can find out your full rate is by getting an elevation certificate completed.

4.                 The 30 day waiting period is changing

Effective 10/1/13, the NFIP will ONLY waive the 30-day waiting period for new loan transactions.  No longer will they waive it “just because” the mortgage company requires it (i.e. the bank suddenly realizes you need flood insurance after the mortgage has already begun).

Many mortgage companies are now requiring the actual flood policy dec page to close a loan but this is not possible because they also now require you to escrow your flood premium.

5.                 Remember that policy assignment is no longer a benefit

Currently, if you sell your property, you can “assign” your flood policy to the new owner and the new owner gets to keep your current rates and won’t need an Elevation Certificate.  Effective 10/1/13, the new owner will be subject to the full rate premium and the new elevation certificate rules will apply.

Tip:  Have the seller go ahead and get an elevation certificate completed so all parties understand the severity of the change in rate.  In some cases it can be thousands of dollars annually in policy premiums.

6.                 Grandfathering will be going away in the near future

This will be HUGE -when put into effect- but Grandfathered renewals will continue to get their reduced grandfathered rates for the time being – but they will be eliminated eventually -TBD…2015… Grandfathering is given to post-firm homeowners that met the flood requirements at the time their home was built but since that time the requirements or the flood mapping changed.

To bring things back around, these are the major NFIP changes to be aware of but they are certainly not all of the changes.  Please visit FEMA’s website which breakdowns many facets of the current and upcoming changes to the NFIP program by clicking here.  As always, you and your real estate clients can visit the Flood Smart website to learn more about flood insurance in general; what is covered, how to get covered as well as how to prepare for floods and be safe in flooded areas.

Additionally, you and your real estate clients should work with a knowledgeable insurance advisor that not only understands flood insurance but one that understands these upcoming changes.  Don’t get surprised by a last minute flood insurance issue that can ruin a real estate deal and your reputation.

If you take anything away from this article, it is highly recommended to go ahead and have all sellers get an elevation certificate completed to see what their true flood rate exposure is.  This will help buyers understand what their potential flood risk and cost might be moving forward.  Doing this can eliminate many headaches, lost sales and potential lawsuits.

If you have any questions related to this article, flood insurance or homeowners insurance, please contact Mappus Insurance Agency at 843.763.4200 or visit our website at www.mappusinsurance.com

To receive a flat $325 Elevation Certificate, please visit our flood insurance page and print off the coupon from Atlantic Surveying, Inc.