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This is my first purchase ever. I'm approaching in a psuedo-investor like perspective. At the end of the day if it can't improve my net worth / cashflow as opposed to renting I don't see the appeal. I wanted to rent out any extra bedrooms to coworkers to facilitate this.
So my $600/mo rent would be about $880 for this property... for about the same monthly [negative] networth change but at a higher negative cashflow. I actually find this okay because when the second extra room is rented it looks good.
So I put an offer in. It was accepted. But during the showing I asked about flood insurance and was told it was optional and it would be about $400-$500 annually. Which isn't a big deal to me. My decision was based off that.
A couple of days later during a conversation about houses among a small group of coworkers once mentioned his realtor stated the potential (more of 'when' not 'if') to the flood plain FEMA wants to make to Minot, ND and requiring anyone in the new and old flood plain to have flood insurance.
People having policies would be grandfathered in and not have their annual premium increase over $2,000. New policies however would be $4,000 - $6,000. Whether or not the numbers are accurate I think the message is quite clear... rates are going to go up... a lot. And hence the monthly payments.
I brought this to my realtor's attention and he replied it was "fear and propaganda." During this conversation yesterday he did say FEMA had a meeting with bankers and realtors about the upcoming changes so this was known to him but was not mentioned when I asked about flood insurance during the showing. (2011 was the flood that prompted this change; Meeting was some time prior to this year.)
I have $500 in earnest on the line.
I have two lines of questions:
A. Should that've been disclosed when I asked about insurance? Can I rescind the offer and keep my money? (Had I that knowledge, the offer... probably would've never been made, and I avoid the new flood plain period.)
B. Different route I'm considering... as I do like the house. I would like to submit a new offer factoring this insurance change in. To handle this properly and keep seller ... as understanding and open as possible... I assume the way to do this would be to surrender the earnest money and make a new offer?
I'm assuming the agent would convey why I did what I did to the seller? Going from a 5% discount to 30% I think would require some explaining. (Keeps monthly payment about the same as current offer but
changes price factoring in grandfathered rate.)
I could've done a better job of due diligence. I guess I naively assumed I was doing so during the showing. I can accept a $500 life lesson now very easily compared to thousands down the road once this is finalized. But I am curious about those two things... thoughts / experiences / advice.
1. A grandfathered policy is transferable in a sale so you should ask them if they have it now. Their premium rate is also transferable.
2. The draft map is out it's here https://fema.maps.arcgis.com/apps/In...5f3e71d6243bb6
3. The draft map can change and take a long time to take effect. For instance my city had it's draft maps come out about 4 years ago.
4. Cities can argue the maps. FEMA tends to use a fairly simple modeling program so many cities hire engineers to provide a counter model.
5. Cities and FEMA can agree on city funded projects that would lower risk in certain areas and therefore reduce overall risk. For instance my city had a draft map with an entire section of downtown in the flood zone because of an old levy. City agreed to replace the levy and that flood area went away.
So you should.
1. Check the map
2. Ask about current policy on the house and if they don't have one ask they get it before you close assuming..
3. Call the city engineers in charge of flood control(or whoever oversees it) and ask them the timeframe for final passage of the map. Might call FEMA field office too.
4. Make a final decision on facts. Including if you want to live in a flood prone property even with cheap insurance.
5. Buy flood insurance no matter where the house is.
Based on that mortgage payment amount, your policy will actually be sub-400/yr. You will also be grandfathered in to the "non-floodplain" rates as long as you maintain that policy (at least under the current rules).
Those maps can and do change over time, particularly as development alters the upstream runoff. Definitely check the map, but don't blow things out of proportion.
Part of your due diligence is to actually check insurance costs if they're important enough to affect your decision to buy. Homeowners insurance cost, for example, can vary significantly from one owner to another based on things like age, credit score, claims history, etc. I don't see how you can go back to the seller asking for a concession related to this. Of course, it can't hurt to ask, but don't expect much.
Part of your due diligence is to actually check insurance costs if they're important enough to affect your decision to buy. ....
Yes this is where I failed. But wasn't sure if asking the realtor about such information would contribute to that... also if it was something of note that should've been disclosed when I asked during the showing.
I understand people have their livelihoods and saying flood insurance may get expensive in the near future could put a damper on that. According to the ND Assoc. of Realtors they recommend to realtors to quote current rates.... further along in the conversation they said FEMA maps once drawn up, basically don't change. Then I interjected meaning all homes in the new flood plain area would be required to have insurance at the high risk rate. To which there was an affirmative.
Seems interesting to me. Like selling a car you know will break and cost loads of money 30,000 miles down the road but will run pretty awesome until that point.
As far as disclosure goes looking like the agent is good.
I signed the Cancellation of Offer as well. The whole point of the property was to increase my networth through rent and equity banked up which completely falls apart with flood insurance. Grandfathered rate not so bad... new rates, yeah. Potentially explains why I saw a completely remodeled flood home (inside the new area but outside of the old) go for $73,000 because the monthly costs with a grandfathered flood policy would be the same as a $100,000+-ish home without one.
Lesson learned. I'll take a loss of $500 to save thousands.
Yes this is where I failed. But wasn't sure if asking the realtor about such information would contribute to that... also if it was something of note that should've been disclosed when I asked during the showing.
I understand people have their livelihoods and saying flood insurance may get expensive in the near future could put a damper on that. According to the ND Assoc. of Realtors they recommend to realtors to quote current rates.... further along in the conversation they said FEMA maps once drawn up, basically don't change. Then I interjected meaning all homes in the new flood plain area would be required to have insurance at the high risk rate. To which there was an affirmative.
Seems interesting to me. Like selling a car you know will break and cost loads of money 30,000 miles down the road but will run pretty awesome until that point.
As far as disclosure goes looking like the agent is good.
I signed the Cancellation of Offer as well. The whole point of the property was to increase my networth through rent and equity banked up which completely falls apart with flood insurance. Grandfathered rate not so bad... new rates, yeah. Potentially explains why I saw a completely remodeled flood home (inside the new area but outside of the old) go for $73,000 because the monthly costs with a grandfathered flood policy would be the same as a $100,000+-ish home without one.
Lesson learned. I'll take a loss of $500 to save thousands.
Yes this is where I failed. But wasn't sure if asking the realtor about such information would contribute to that... also if it was something of note that should've been disclosed when I asked during the showing.
Realtors are not insurance agents. Realtors are not going to answer questions like that with definitive answers outside their expertise. Your due diligence is to contact an insurance company and have them quote you.
Location: Sarasota/ Bradenton - University Pkwy area
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The National Flood Insurance Program (NFIP) will expire yet again on July 31, denying necessary insurance coverage to homeowners and buyers unless Congress kicks the can down the road for the nth time.
The NFIP is deeply in debt and at some point in time Congress will need to do a major overhaul of the system to deal with the shortfalls. So keep in mind that none of the premiums you are quoted are etched in stone.
By the way, most flood insurance rates are increasing each year thanks to the 2015 changes to the National Flood Insurance Program as required by the Homeowner Flood Insurance Affordability Act of 2014.
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