July 2018 OBX Market Update

We are fully into our summer season here on the Outer Banks.  As expected, the summer months typically bring in a decline in sales as well as inventory.  While we still have a fairly active market over the summer, some property owners just elect to wait out the season and sell in the fall.

Here are the most important market points:

  • Sales for the year so far are down 5% over last year
  • Inventory is also down 5% from last year
  • Land sales are down 11% from last year
  • Land inventory is down 8% from last year
  • Number of homes going under contract is also in a steady decline since April
  • This is largely due to the rise in interest rates

Taking a look at the chart below, you’ll see the cycles we’ve experienced in market activity.  It’s not uncommon after a year with double digit increases to have a flat year following it.  What is most exciting is the inventory level change since 2012.

The other notable difference in our market is the way buyers are buying.  We are seeing much more emphasis being put on price and condition rather than location and rental income.  I wrote about this a few months back, click here to read that article again.

As always, if you have any questions about buying or selling please contact me for an analysis.

 

Insurance Rate Hike Report

Reprinted with permission from the Outer Banks Association of Realtors.

Settlement Reached on Dwelling Rates

The NC Rate Bureau and the NC Department of Insurance (NCDOI) reached a settlement agreement this week on a Dwelling Rate Filing that was submitted in February of this year. The Rate Bureau was proposing an overall statewide average increase in dwelling policy rate of 18.9%.

NC Insurance Commissioner Mike Causey was able to negotiate a much lower average overall statewide increase in dwelling policy rates to 4.8%. The settlement also realigns some territories to be consistent with the boundary lines on the homeowners insurance rate map.

Dwelling policies differ from homeowner policies. Dwelling policies typically cover non owner- occupied second homes, vacation rental homes or year-round rental homes and do not include liability coverage.
By reaching an agreement with the NC Rate Bureau, Insurance Commissioner Mike Causey has avoided a public hearing on the filing which was scheduled to begin August 20th. Below is a chart of the proposed rate changes by percentage, the current rate and the approved percentage changes.

In the eastern NC coastal area, the fire coverage rate is going down but the wind and hail (extended coverage) rate is going up. Fortunately, the wind rate is not going up to the extent that was proposed. Wind rates are three to eight times higher than fire rates so a double-digit increase in wind rate is going to have significant impact on policyholders. The Fire and Wind portion of the rate is based on $15,000 Coverage, Base Class is Form DP-001. The new rates become effective February 1, 2019 and also impact those with dwelling policy coverage under the NCIUA (Coastal Property Insurance Pool). Changes to contents coverage are also included in the settlement agreement.

The press release and associated maps and charts from NCDOI can be found here.

Summer Pritchard’s Bio

Summer grew up in a military family and moved to Virginia Beach, Virginia in 1994.  As a teenager and young adult, she spent most of her Summers on the Outer Banks, knowing that one day she would call it home.  In 2016, she made that move and fulfilled her long awaited dream.  Summer has a great love for the beach and couldn’t imagine any life without it.
As a licensed Real Estate Broker in North Carolina, Summer comes to Beach Realty with a high level of customer service skills.  She has served 17 years in the Medical industry, working with a vast array of people from all walks of life.  This gives her great ability and flexibility to work well with anyone.  As a Senior Leader in her previous job, she also knows when to take charge and get things done, accurately and effectively.  One of Summer’s highest qualities is her exceptional communication skills.  She also takes great pride in her commitment to her clients.

Contact Information:

Summer Pritchard, Realtor (R)

Beach Realty NC

1450 Duck Road

Duck, NC 27949

Cell: 757-619-2342

Flood Maps Update – Dare County

Reprinted with permission from the Outer Banks Association of Realtors

Flood Maps – Know Your Zone/New Informative Web Site

HIGHER LOCAL ELEVATION STANDARDS BEING DEVELOPED

Dare County’s Program for Public Information/Flood Insurance Community Rating System (CRS) Committee met last week and discussed a flood map education and awareness campaign and local flood elevation standards/freeboard regulations. Dare Planning Director Donna Creef led the discussion and shared that Dare County should soon receive their revised preliminary flood maps for Review and Comment and by this time next year, Dare County should be in the 6-month adoption period. This puts the effective date of the maps approximately sometime early summer of 2019. The timeframe for Currituck’s preliminary maps to become effective is similar.

PLEASE TAKE NOTE: The preliminary maps show many properties in Dare County being removed from the special flood hazard area (AE or VE zone) and being shown in an X zone. For the past year, there has been a county-wide effort that has focused on historical and future flooding hazards that were not addressed in the development of the preliminary maps. Instead of appealing the maps and holding up their adoption even further, local leaders came together to tackle this issue with forward thinking and a proactive approach. The outcome of “taking ownership of our own problems” will result in a more resilient community and lower flood insurance costs when maps change in the future.

Leadership of the Outer Banks Home Builders Association in collaboration with Dare County Planner Donna Creef, Town Planners, Engineers/Surveyors, OBAR reps and others have been hard at work to develop local elevation standards that are above what is shown on the preliminary maps. The standards will more accurately reflect local flooding hazards. The higher local elevation standards will be used for new development and re-development projects; the maps will be used for insurance rating purposes only thus allowing property owners to take advantage of much lower flood insurance premiums. The new elevation standards will apply to all X-zone and Shaded X-zone properties. Properties mapped to VE or AE zones will have a freeboard requirement of possibly 4 feet or more. Local governments will adopt the elevation standards prior to the preliminary flood maps becoming effective.

To summarize, those involved in the building or real estate industry should not use the preliminary mapped base flood elevations for future planning purposes or for marketing the potential re-development of a property. The preliminary maps may show that a property owner can now enclose a first floor or build slab on grade on the oceanfront. This will likely not be permitted when local standards are adopted!

Know Your Zone – “Low Risk” is Not “No Risk”: Check out www.obxFloodMaps.com for more information. While property owners in an X-zone are not mandated to carry flood insurance, a local campaign is underway to encourage ALL property owners to have coverage. The flood maps do not address flooding from heavy rain events and other storm scenarios which have caused major flooding and property damage on the Outer Banks. After all, the Outer Banks is surrounded by water – a property owner would be “flood foolish” to not have coverage!

April 2018 Outer Banks Market Report

What to expect when you’re expecting…to buy a home on the Outer Banks!

Navigating the home buying process can be a complex process.  Knowing in advance what to expect regarding the condition of the home can make it a lot smoother.  Here are the main things to consider regarding this process.

  1. Create realistic expectations on condition. In most cases these homes are anywhere from 20 to 40 years old.  The main reasons the condition might not be where a buyer is expecting it are:
  • We live in an environment that has harsh weather and it is tough on these homes
  • Most homes are rented anywhere from 15 to 25 weeks a year with multiple families occupying them. Wear and tear is going to happen
  • Since this isn’t the primary home, owners aren’t seeing it every day and often aren’t aware of what needs to be done
  • No one else is telling them about things that need to be addressed
  • Most homes are owned for several decades and owners get to an age where it’s more difficult to do the work themselves
  • Finding and managing good contractors from a distance is a challenge, especially as owners age
  • Sellers have disengaged from the property – this happens for many, many reasons.
  1. It is standard language in our Offer To Purchase contract for North Carolina that buyers are purchasing the home “AS-IS”.  Yet many buyers are never told this.  When you make an offer to purchase a home you need to factor in the condition/maintenance items that you can already visibly see into the offer price.  Once you settle on a price and go under contract, it’s important to remember those items have already been accounted for.

So many times we see great deals go awry because the buyer is never educated on how to handle the home inspection results.  This can create some unnecessary difficulties and even result in the buyer terminating the contract on a great home, simply because they didn’t understand the process.

Here’s the actual language from the contract:

Paragraph 4(c) Buyer acknowledges and understands that unless the parties agree otherwise, THE PROPERTY IS BEING SOLD IN ITS CURRENT CONDITION.  Buyer and Seller acknowledge that they may, but are not required to, engage in negotiations for repairs/improvements to the Property.

As you can see, it is not mandatory, nor really expected for the seller to agree to repairs after the initial agreement is signed.  It is imperative that a thorough, on-site review of the property is conducted prior to making the initial offer so that all visible maintenance items are considered in the pricing strategy.  The goal when listing a home is to have it priced in relation to those items to begin with.  However, it is important to understand value is relative from person to person.

  1. What exactly is the purpose/scope of a home inspection? There are several things to consider about the home inspection process.  The primary function of a home inspection is the following:
  • Find hidden defects
  • Building code check – for information purposes. It is not realistic to require a seller to bring every outdated code up to par
  • Professional opinion of the functionality of the main systems of the home
  • Expanded review of the home (attics, roof, crawl space, etc)
  • Inspectors are paid to find problems. No home is perfect and items will be found commensurate with the age of the home.  It’s important to have that expectation up front.
  1. Because of the nature of the in depth inspection, it is not uncommon for unexpected issues to be revealed. How do we then handle the unexpected?
  • First, quickly remember Paragraph 4(c), the seller is not under any obligation to do anything at all.
  • We need to quickly organize some quotes so we know exactly what we are dealing with, even if the buyer is going to take on the repairs.
  • We have to decide whether we want the seller to actually fix the issues or if we want to receive a credit at closing instead. There are pros and cons to both of these.
  • We need to share the report with the seller so they can be educated on the condition of things
  • Recognize once these items are discovered they become a material defect that will have to be disclosed to any future buyers, should the buyer decide to walk away.
  • Prioritize the list of repairs that are important, rather than just asking for the entire list to be addressed. Especially since we already factored into our pricing strategy the items we could already see.
  • Understand that perfect condition will be reflected in the price. Chances are the home is already priced commensurate to the condition and age.

Main walkaway points:

  • Be realistic – you’re not buying a brand new home
  • Be flexible and willing to compromise – no house is going to be perfect
  • Weigh out the options – don’t lose a great house over a few needed repairs

March 2018 Outer Banks Market Update

Figures show that residential home sales for the Outer Banks are down 17% for February.  There were only 83 home sales, making that the weakest month of sales since November 2011.  So today I want to address the proverbial “elephant in the room” and what I consider the primary reason for the drop in sales.

First factor I addressed last month.  We were expecting this year to be flat, no substantial growth.  This is because markets are cyclical and historically speaking we have a flat year every 3 to 4 years.  This year just happens to be the time for it.

The second contributing factor continues to be the inventory level.  While we are moving in the right direction regarding inventory, we still have more homes for sale than buyers.

The interesting conundrum we experience, here on the Outer Banks, is the discretionary nature of buying and selling.  Most sellers I talk to say they don’t HAVE to sell.  It makes sense, as they aren’t physically moving OUT of the home.  Similarly, buyers are not physically moving INTO the home so, they too, don’t HAVE to buy and they are willing to wait for the right house.  There is no push for buyers to make a decision on a home that is not “turn key”.

So, what exactly does “turn-key” mean to a buyer?

  • Zero to minimal maintenance work required. This means the main systems of the home are in good repair and working order – ie.  the roof, windows, doors, siding, decking, paint, HVAC etc.
  • Upgraded, clean interior with the latest finishings (flooring, appliances, furniture etc.)
  • Well equipped for rental/summer season. This means well furnished, stocked and equipped for use by guests and owner with the best possible amenities.

Why do buyers want a home that is turn key?

  • They don’t want to manage a maintenance or renovation project from afar
  • Many don’t have the willingness to do any remodeling and upgrading
  • There are a lot of other choices available (remember the inventory) that are turn key
  • They want to be more than compensated for the “what if” scenarios that come up if handling maintenance issues
  • Financing is more challenging making it difficult to get the funding for repairs and/or upgrades
  • Cash after a large down payment to purchase is not as readily available
  • Probably the biggest reason is buyers are starting an exciting and new adventure with a beach house – they don’t want to feel they are starting out, already behind (ie. Having to do work to something they just paid a lot of money for)!

Why aren’t more Outer Banks homes turn key?  There are a lot of homes on the Outer Banks that have deferred maintenance and/or are outdated and this can be for a wide range of reasons.

  • Since this isn’t the primary home, owners aren’t seeing it every day and often aren’t aware of what needs to be done
  • No one else is telling them about things that need to be addressed
  • Most homes are owned for several decades and owners get to an age where it’s more difficult to do the work themselves
  • Finding and managing good contractors from a distance is a challenge, especially as owners age
  • Sellers have disengaged from the property – this happens for many, many reasons.

How can we best leverage this information? The key is understanding what makes a home more ATTRACTIVE versus more VALUABLE to a buyer.  This is where we see the connection between wants versus needs.

Basically, if the NEEDS of the house are updated and in good working order (aka, not original to an older home) the home is more ATTRACTIVE and will sell faster.

  • Needs are the things the house is already supposed to have – think the mechanical systems, building envelope, main components of what makes it a house
  • Buyers are already paying for these things and will not likely pay more for something the home is supposed to have in good working order. This is related to the maintenance work I mentioned above.
  • When you have these items in good shape this makes the home more ATTRACTIVE to a buyer, not necessarily more valuable.

The WANTS of the buyer in a house are the flashy upgrades a buyer is willing to pay more for.  Doing upgrades that make sense can potentially make the home more VALUABLE and help it sell faster.

  • Wants are the latest, greatest finishings and materials – think, granite counters in kitchen and bath, tile showers, hardwood or laminate flooring, composite/synthetic decking, fashionable décor
  • Upgrading doesn’t always make sense! It’s important to check with a professional agent for where best to spend money before selling.  Depending on the home, sometimes the money is better spent in adjusting the price over investing more into the home.

Bottom line…as I look through the list of homes sold this year, there is a common theme.  The majority of the homes that sold quickly and for the best pricing share some of the same words in the description:

  • New in 2017/2018
  • Updated recently
  • Completely remodeled
  • Upgrades galore!

Although this is the common theme, that doesn’t mean your home won’t sell without dumping a ton of money into it.  As I said before, it does not make sense to upgrade and update in every situation.  What I think it does identify is the need for proper pricing based on the condition of your home in relationship to the expectations of the buyers looking in today’s market.  These buying trends are not likely to go away, so if you’ve been thinking about selling, call a professional for advice on what, if anything, you can do before listing.  And keep in mind condition is a major factor in today’s market.  I hope this information has been helpful.  If I can answer any questions for you please reach out.

2017 Outer Banks Market Report

The buzz around town is that 2017 was a banner year for sales. So, is it true? The
answer is not a simple yes or no. There are many facets that impact a real estate
market.
The truth is, it depends on which side of the fence you’re on as to how you’ll measure the
market activity. Let’s look at the 5 ingredients of a market, in what I would consider
the order of importance:
1. Price – This of course, is the top concern for buyers and sellers. The
definition of a good market to a seller will usually come down to what
price they can get for their home.
2. Inventory – This is truly the one factor that can make or break a market.
Inventory controls price. We all know the principle of supply and
demand and how that impacts the value of a home.
3. Activity – The number of properties sold annually is a major factor and is
dependent on the previous two factors. If no one is buying, it keeps
inventory high and prices very low. We have two main markets on the
OBX (Duck and Corolla) where the sales that take place are 100%
discretionary. With no primary market forcing sales to take place, this is
keeping the inventory at high levels.
4. Interest Rate – Rising or falling interest rates impact the buyer’s
purchasing power. We are still experiencing very low rates, for now. All
signs point to some increase this year.
5. Buying Trends – This factor is the one least considered by sellers,
mistakenly. Especially in a resort market. Most sellers assume the
buyers are going through the same thought process they did when
buying. That simply isn’t true. Today, buyers place the most weight in
their decision on condition. After 20 years in the business, this is
definitely a shift in process.

So how did the Outer Banks fare in 2017 relative to each of these 5 categories?
1. Price in most locations has not changed. There is still no area with any
measurable appreciation and some areas (Duck and Corolla) are still
subject to some minor depreciation due to continued high inventory
levels.
2. Inventory is on the decline. In 2017 we had the lowest monthly inventory
levels since 2010. That is excellent news and a great sign of continued
recovery for our market.
3. Activity was up over 2016. Like any market we experience cycles. Any
time there is a double digit increase in sales, the next 3 to 4 years become
a little stagnant. That’s just how markets cycle. When you hear that the
OBX market was on fire last year, this is likely the aspect one was
referring to. This increase in activity really helped lower the Days on Market.                                 However, pricing for the market is the greatest contributor to that.

Year                    2012      2013      2014       2015       2016      2017
Total # Sold      2042      2093     2139      2292      2289      2560
Increase from
Previous Year    21%         2%        2%           7%         0%        11%

4. Interest Rates remained steady between 4% and 4.25%. Your guess is as
good as mine as far as what will happen with that this year. Stock market
gains are making it easier to diversify and invest in real estate.
5. More homes were passed up in 2017 because of outdated condition than
any other reason. If you want to sell quickly, you’ll either need to price
your home for it’s condition or invest in a few upgrades.

If you’d like more information on buying or selling this spring, contact me for more
information.

December 2017 OBX Market Update

Sales and Under Contract Properties


Our positive sales continue with single family residential sales units remaining up 14% YTD 2017 over 2016 and the corresponding dollar volume is up 17%.   

Residential land sales, YTD 2017 over 2016, are up 11% in units and up 3% in dollar volume.  The median sales price is up 1% year over year.

Inventory


Currently the market sits at about 10 months worth of residential inventory. This is a very encouraging sign and is a combination of strong sales and lower inventory levels.  It is EXTREMELY important to remember that this varies GREATLY by area and town.  We still have some areas that are not experiencing these results.  It is important to understand what the number is for your area.

New inventory that came on the market in November was up 2% from November 2016.  

Average days on market for SOLD single family residential YTD 2017 is 152, down from 208 days in 2016!  Average days on market for all current active single family residential listings remains at 215 days. 

Distressed residential properties comprise 6% of sales YTD which is flat to 2016.  Distressed listings currently comprise only 1.5% of active inventory.

Pricing

Single family residential median sale price YTD 2017 is $323,000, which is up 3% over the year prior.

This data here represents the percentage of total homes sold in each respective year relative to the sales price range. When we see an increase in median price, it can sometimes be just more sales occurring in one price range versus an actual increase in price. I think for 2017, both are actually true. We did see actual appreciation in two markets. Kill Devil Hills Between the Highways as well as Kill Devil Hills Westside.

 Price Category                     YTD 2016      YTD 2017
Below $199,999                               14%                  13%
$200,000 – $499,999                    68%                 66%
$500,000 – $749,999                     11%                  14%
$750,000 – $999,999                      4%                   4%

$1,000,000 and up                           4%                   4%

AreaMedian Price% Change YTD       

2017 to 2016

Units Sold %

Change YTD           

2017 to 2016

Corolla$476,250+12%+5%
Duck$465,500+6%+30%
Southern Shores$422,500+6%+23%
Kitty Hawk$307,500–%+3%
Colington$252,500+8%+9%
Kill Devil Hills$275,750+4%+5%
Nags Head$380,000-1%+20%
Hatteras Island$300,000+12%+12%
Roanoke Island$281,880+7%-10%

 

National Flood Insurance Program Proposed Changes

The following is reprinted with permission from the Outer Banks Association of Realtors.

NAR Addresses Concerns About Flood Insurance Reform Bill

The National Association of Realtors sent out the following information today regarding their Call for Action last week on HR 2874 – 21st Century Flood Reform Act:

NAR has fielded many calls and emails with concerns about the bill’s impact on current and future NFIP policyholders.

The National Flood Insurance Program (NFIP) provides necessary flood protection and coverage for 5 million policyholders across 22,000 communities nationwide. However, the NFIP is currently running a $1.4 billion annual deficit, and accumulated a $24.6 billion debt after weathering a series of catastrophic loss years since 2005. These numbers do not include expected claims from Hurricane Harvey. The program is up for reauthorization on September 30th.

NAR urges the House of Representatives to bring up and pass HR 2874: The 21st Century Flood Reform Act upon returning in early September. The bill meets all six of NAR’s reform principles. It would reauthorize the program for 5 years, stabilize its financial position, and make numerous and significant improvements to current law. Following are NAR responses to questions about the bill.

FREQUENTLY ASKED QUESTIONS

Why should Congress pass The 21st Century Flood Reform Act?

• Reauthorizes the NFIP for 5 years;

• Limits maximum flood insurance premiums to no more than $10,000 per year for residential properties;

• Preserves the practice of grandfathering for remapped property owners who build to code;

• Removes hurdles to the private flood insurance market, which often offers better coverage at lower cost than the NFIP;

• Authorizes $1 billion in pre-flood mitigation assistance grants to elevate, flood proof, buyout or mitigate high risk properties;

• Doubles increased cost of compliance (ICC) coverage in the NFIP policy so policyholders can obtain up to $60,000 for property mitigation and access these funds before the property floods;

• Better aligns NFIP rates to the risk, particularly for lower risk and lower value properties inland of the coast;

• Enables more communities to develop alternative flood maps like North Carolina’s, which are more accurate than FEMA’s, and generally streamlines the map appeals process;

• Improves the claims process in light of problems experienced after Superstorm Sandy;

• Addresses issues with repeatedly flooding properties that account for 2 percent of NFIP policies but 25 percent of the claim payments over the history of the program; and

• Overall strengthens the solvency of the program over the long term.

Why not just reauthorize the NFIP without major reforms?

As currently structured, NFIP is unsustainable over the long term. According to the Congressional Budget Office (CBO),

• NFIP premiums fall $1.4 billion short of expected annual costs, including all potential flood events, not just the ones FEMA counts.

• As of March 2017, the NFIP has borrowed $24.6 billion to make claim payments for hurricanes in 2005 (Katrina) and 2012 (Sandy), and inland flooding (Baton Rouge) in 2016.

• According to the CBO, the program is expected to borrow at least another $1 billion over the next 10 years and there is only $5 billion left on its borrowing authority (just over $30 billion). These numbers do not account for claims expected to result from Hurricane Harvey.

• The NFIP is not able to repay the $25 billion already borrowed and is making interest-only payments.

• Interest on the debt costs NFIP policyholders $300 million per year — funds not available for other purposes including paying claims or improving flood mapping.

• Approximately 25 percent of NFIP policies are subsidized and paying rates below full cost.

• Less than 2 percent of 5 million policyholders flood repeatedly (two or more times) but account for more than $8 billion or 25 percent of the claims and one-third of NFIP’s $25 billion debt;

• Because NFIP sets national average rates, many lower risk or lower value properties, especially those inland of the coast, are overcharged for flood insurance while others are undercharged.

Will NFIP rates increase under the bill?

While the majority of policyholders are expected to see no change or a small rate decrease, the highest risk and highest value properties, particularly those that flood repeatedly, could see an increase. However, increases would be phased-in gradually over many years. Increases are capped at 15% a year under the bill. The bill also includes a new cap on premiums so no homeowner would pay more than $10,000 per year maximum for flood insurance.

Additionally, more than $1 billion in mitigation grant dollars is set aside under the bill for property owners to elevate, flood proof, buy out or relocate, and thereby reduce their risk-based NFIP rate. Elevating a home by just two feet can cut the NFIP rate by as much as two thirds.

What does Section 104 (coastal and inland locations for NFIP rates) do?

This provision would direct FEMA to develop NFIP rates for coastal and riverine areas, and inland.

Currently, NFIP has two risk-based rate tables – one for properties subject to more than 3 feet of storm surge (V zones) and one for everyone else (A zones). According to the CBO, this means that “owners of homes that are subject to [up to 3 feet of] wave damage from storm surge do not pay higher premiums that reflect additional risk; instead, they pay according to the same rate schedule that is used for homes that are not exposed to wave damage. The result is an implicit cross-subsidy from inland homes to coastal homes…”

By developing inland rates for coastal properties and considering such risk factors as “distance to coast,” NFIP would move toward a more granular rating system like an insurance company’s. This means that rates would generally decline with the risk as one gets further away from the coast, and vice versa. In many cases, coastal properties not subject to storm surge risk could pay less. It would also mean that homeowners in Winslow, AZ, would not pay the same rate as those just blocks away from the coast in Miami, FL. However, under this provision, increases would be subject to annual limitations so no homeowner could pay more than a 15-percent increase in any given year (down from the current law of 18 percent) or $10,000 maximum.

NAR policy supports fair flood insurance premiums, which reduce cross subsidies and better aligns with property specific risk. NAR specifically requested that section 104 be added based on an NAR-sponsored Milliman actuarial analysis of the NFIP. This study found that inland policyholders in counties including Pinellas, FL, could pay thousands of dollars too much for flood insurance while others closer to the coast pay thousands less. Milliman has recently been hired by NFIP to explore a redesign of its risk rating structure, so the NAR analysis could help illustrate the potential benefits and costs of such a provision.

What about Section 504 (repetitive loss properties)?

Section 504 would address the 90,000 structures — 2 percent of 5 million NFIP policies — that have repeatedly flooded two or more times and received more than $8 billion in claim payments since 1978. According to a Natural Resources Defense Council (NRDC) analysis of FEMA data, these properties have received an average of five claim payments totaling $181,000, and 75 percent have not taken any action to mitigate the risk of further claims.

Under the Biggert-Waters Act, NFIP rates increase 25 percent per year for repetitive losses that are “severe.” However, the majority of these properties have avoided the 25-percent increases by either filing numerous smaller claims (so no four exceed $5,000) or just two claims averaging $55,000 each but amounting to just under the value of the structure. If rates do not increase with claims, there is less incentive to mitigate and the program becomes more expensive for other policyholders. Also, because of the flawed Biggert-Waters definition, many of these property owners would not qualify for FEMA mitigation grants — even if they wanted to reduce their risk of flooding.

Section 504 would close the loopholes and make mitigation grant assistance available by redefining the term “repetitive loss” simply as “two or more claim payments of any amount.” However, no one would see a rate increase under the bill unless/until the property owner receives at least three claim payments, including at least one after the date of enactment. The bill would also reset the property’s claim status if mitigated, so no claims made prior to mitigation are counted. If a property owner nevertheless decides to file more claims without mitigating, their NFIP rate would begin to increase 15 percent per year – increases already allowed under current law — until reaching full risk. This is less than the 25-percent increases for second home and business owners but higher than the 6.5-percent increases for primary residences with zero claims.

By redefining repetitive loss as two or more payments, section 504 would also make all repetitive loss properties eligible for both flood mitigation assistance and increased cost of compliance, and set aside more than $1 billion in grant dollars. The bill removes paperwork, red tape and bureaucracy so FEMA can directly provide or expedite these grants to the owners, and waives NFIP’s current cost sharing requirement, i.e., repetitive loss properties will no longer have to pay 10 percent of the cost in order to receive a FEMA grant.

Does section 504 apply to any two claims of any amount?

No, Section 504 would apply only if there are three claim payouts – either two in the past and one in the future, or one in the past and two in the future. It is not “any claim of any amount;” it is any claim payment of any amount that exceeds the policy’s deductible. Deductibles for homeowners can range from $1,000-$10,000 so any claim for less than this would not count toward Section 504.

While the bill language is less clear on what happens to future repetitive loss properties with zero past claims, the bill sponsors’ intent is at least three claim payments before the section applies. NAR is working with the sponsors to tighten the language so there is no room for interpretation.

Would the NFIP rate go to full risk upon the second claim?

No, the property owner must file at least one more claim in the future before any premium changes take effect. The owner would also have access to grants and an opportunity to wipe the slate clean via mitigation. If the owner however chooses to file more claims before mitigating, the NFIP rate would begin to rise 15 percent per year until the owner pays full risk. The rate could not exceed $10,000 per year for residential properties.

Will repetitive loss properties lose their grandfathered status?

NAR supports grandfathering for property owners who build to code. According to FEMA, most repeatedly flooding properties were built before there were flood maps or codes (i.e., pre-FIRM). Moreover, the vast majority have been substantially flood damaged (i.e., damage exceeds 50% of the building’s value), which would render them not eligible for grandfathering under current law.

In fact, this bill would enable repetitive loss property owners to grandfather, not the reverse. Under the bill, if an owner mitigates to code, the property’s status would reset so it could grandfather to the map at the time of mitigation when that map is updated in the future.

Do repetitive loss properties lose pre-FIRM subsidies?

Pre-FIRM subsidies are already being phased out under current law; section 504 would not change this. Under the legislation, NFIP rates for severe repetitive loss properties, non-primary residences and business properties will continue to increase 25 percent per year until reaching full risk (same as current law); the primary residences will increase 6.5 percent. What section 504 does is raise the rate to 15 percent per year (instead of 6.5 percent) if a primary homeowner receives at least three claim payments, including at least one after bill signing.

Would the bill eliminate NFIP coverage for repetitive loss properties?

Only for the most extreme repetitive or excessive lifetime loss claims.

• Section 504 would discontinue NFIP coverage if a repetitive loss property submits at least three claims, the sum of all claim payments exceeds 1.5 times the NFIP’s coverage limit for structure ($525,000 for a residential property), and the owner refuse to mitigate.

• Section 505 would discontinue coverage if the sum of all claim payments received in the future (beginning 18 months after bill signing) exceeds 2 times the value of the building (e.g., if a $500k structure cumulatively receives more than $1 million in NFIP payments for floods after 2020).

It is unlikely that any property owner would choose to file additional claims knowing that the next one would trigger either of these thresholds and force the NFIP to drop coverage.

Why are these changes necessary?

As currently structured, the NFIP is not sustainable over the long run. While the bill does make some difficult choices, the changes are the minimum necessary to close the $1.4 billion shortfall between premiums and claims. The bill could have gone farther to address the $25 billion debt but did not. Sacrifices are shared by policyholders over time so no one group would bear the full burden. Does this mean that a handful of policyholders might see higher rates? Yes. Does this bill provide financial and mitigation assistance for those who could be hardest hit? Yes. If the program is reauthorized without major reforms, will there continue to be an NFIP in the future? There are no guarantees.

The bill in its entirety can be found here.

September 2017 OBX Market Update

We had a mild August for weather, not for real estate sales.  With interest rates still very low and activity increasing, we fully expect a great fall market.

Here are the main highlights:

  • Condition – Buyers are becoming more and more selective about the condition of the homes they buy. Their expectation is to have the updates and upgrades already done.  Updates = recent roof, windows, doors, siding, paint, HVAC.  Upgrades include granite counters, stainless appliances, tile or hardwood floors, cabinets in kitchen and bath.  It’s clear, do the updates/upgrades or drop the price.
  • Homes listed and sold since January 2017 are going in only 45 days. Many with multiple offers.  Buyers have been watching the market for years.  They know when a house comes on the market at the right price and they are ready to act.
  • Residential inventory is down by 8%. This is a nice continuation of what is needed to stabilize the market in Duck and Corolla.  Because those areas are primarily second homes, the inventory has been stuck very high.  That has been putting more pressure on lowering prices.  We are slowly getting there, yet still a year or two away.
  • Distress sales made up 2% of all sales for our local market. That makes these sales a complete non-issue as that is a normal amount for any market.
  • So far this year 18 more homes have sold in Corolla than last year (an increase of 10%). In Duck there were 34 more homes sold this year, up 38%.  Overall the entire market is up by 11% (1310 homes sold 2017 vs 1176 in 2016)

If you have any questions about buying or selling on the Outer Banks, please contact me.