Lending Worksheet

Thinking of buying a vacation property or second home on the Outer Banks? Here’s a quick
look at the most important information to know as you begin the process. While none of these
are absolute hard and fast rules, here are some basic guidelines to create the easiest and best
experience.

Securing the best rate requires:

  • Credit scores of 740 or higher
  • Non-Conforming loans allow a 43% debt to income ratio, 45% on Conforming
    (exceptions apply)
  • Tangible assets are key (i.e.: checking, savings, 401K etc.)

Second Home MUST do’s for best experience:

  • 20% or more down payment
  • Live at least 50 miles away
  • Must have access at least 2 weeks of the year- no full-time tenants
  • Use a local lender – Out of town lenders won’t know what to do with the Bill of Sale,
    Vacation Rental Addendum and might use an appraiser who isn’t as familiar with the
    area
  • Don’t own another beach house in the area (some exceptions apply)

Investment Loan Quickies:

  • If you need the rental income to qualify for the loan it becomes an investment loan
  • Investment loans carry a higher rate, but the down payment can remain 20% (lower
    down payments carry higher rates)
  • The income to qualify will be determined by an appraiser. Appraiser will do an analysis
    of the reasonable rental income available and you can use 75% of that amount
  • Titling in an LLC will carry a higher interest rate

Best practices for any loan:

  • Flood insurance has to be escrowed and the 1 st years payment is required at closing
  • To waive escrows there is a .25% fee on loan amount due at closing
  • If you are self-employed you will need to fully qualify through underwriting to be sure of
    the amount qualified for
  • If you own multiple rental properties you will also need to be fully qualified up front to
    be sure
  • If you have declining income, the lender will take the worst of the last 2 years as the
    basis from which to work
  • Don’t buy anything requiring financing once you start the lending process

Best sources for down payment:

  • Mutual funds/stocks
  • Savings/Checking
  • 401K Loan – not counted in your debt to income ratio
  • Home Equity – will use full line payment for qualifying
  • Gifted funds can sometimes work

Worst sources for down payment:

  • Any funds that are untraceable or unseasoned
  • “Mattress Money”
  • Business funds will require additional documentation from a CPA

November 2018 Outer Banks Market Snapshot

What’s interesting about this time of year, is that we can really see the major trends going on in
the marketplace for the calendar year. I’m highlighting 3 specific points for this analysis.

Inventory
Inventory levels on the Outer Banks, specifically northern beaches, have been particularly
challenging for our market. The fact is, in Duck and Corolla, there are little to no primary sales
taking place. That is, no one is physically moving into or out of that area. Those kinds of sales
are crucial to market health because those people “HAVE” to buy and sell. The truth is, 100% of
the sales that take place in those areas are discretionary.

Nearly every seller we meet says the same thing…”We don’t have to sell.” Which is very true.
You don’t have to sell because you’re not making a physical move, nor are you in financial
distress. It’s important to recognize that 99.9% of sellers we work with, don’t HAVE to sell.
There’s a common misconception that pricing your home to sell in today’s market is the same
as discounting it to force it to sell. That’s simply not true. Today’s market in Duck and Corolla
simply has an oversupply of inventory and an under-supply of buyers. That’s the bottom line.
It’s a resort market where all sales are discretionary. Period. I encourage you to ask the
following question. Just because I don’t have to sell, does that mean keeping the home is in
the best financial interests of myself/family/long term plan? That’s what it really boils down
to. I know it’s difficult to swallow the prices today’s market requires, but consider the whole
picture before making a final decision.

The price in these kinds of markets are 100% dependent on the principle of supply and demand, because buyers don’t HAVE to buy until they find the home that ticks all the boxes for them.
Consider this in Corolla:
– Corolla has 294 homes currently for sale.
– 189 homes have sold so far this year; that’s 19 sales a month
– 19 buyers will buy each month and they have 294 to choose from
– 26 Oceanfront homes sold this year in Corolla
– That’s 2.6 buyers a month
– There are currently 53 oceanfront homes for sale in Corolla

Consider this in Duck:
– Duck has 128 homes currently for sale
– 104 homes have sold so far this year; that’s 10 sales a month
– 10 buyers will buy each month and they have 128 to choose from
– From $400,000 to $800,000 there are 52 homes currently for sale
– 47 have sold this year in that range; 4.7 buyers a month
– 4.7 buyers will buy each month and they have 52 to choose from

This is why inventory is the biggest indicator of value in the market right now. We have seen
major improvement in inventory levels over the last few years. This year, we are seeing that
inventory move back up, even just slightly. What does this mean? It means that appreciation is
not happening any time soon, and, that depreciation is still a very real possibility. I don’t report
this to be negative, just to be realistic. Waiting out the market is not a short term endeavor.
Bottom line…inventory is the single biggest challenge in the northern Outer Banks market.
Until that changes, your price won’t either.

Days on Market
The shining point of our market has been the amount of time it takes to get a home that is
priced right, sold. Priced right mostly means priced for its condition. Condition has become the
single greatest factor in a buyer’s decision. They will bypass location for an updated home
almost every time. For more information on the impacts of condition, click here.

The days on market number has gone DOWN again this year by another 20%. This is the third
year in a row this number has dropped by 20% or more.
What does this mean?
– Buyers are watching and waiting for the best value. They study the market for 18
months or more before making a decision to buy. When they see a home that is a good
value, they act quickly and with near full price.
– If your home is on the market for more than 118 days, buyers don’t consider it to be a
good value.

The real estate market is fluid. Pricing your home on one day based on the competition is only
as good as that competition stays the same. As homes sell and adjust their price, you have to
flow with it. In this kind of market, you can either lead with an aggressive price and sell, or,
follow the price others set for you as they sell. Why leave your pricing up to someone else’s
motivation?

Total Sales
Not only did the number of homes going under contract drop by 19% for October, the total
number of sales year over year is down by 10%. Blame the hurricane, the election, whatever
you like. It doesn’t change the facts.

Here’s the deal…interest rates are up, inventory is slightly up, sales are down by double digits.
I’m not telling you this to create panic. My job is to sell homes regardless of the market
conditions, which I have done for over 22 years. My job is also to keep you informed on the
trends, as they are happening. We don’t have a crystal ball, so statistics are the next best thing.

The Discretionary Nature of the OBX Market

NEEDS vs WANTS

  • Needs – UpDATES; maintenanceBalance Beam of Needs vs Wants
    items that increase attractiveness,
    peace of mind, and cause home to sell
    faster
  • Wants – UpGRADES that may
    increase VALUE AND make a home
    sell faster; appeal

 

Stop Sign

Remember, not all Upgrades make sense! Let’s talk before you spend –
sometimes money is better spent adjusting price vs. investing more in the
home.

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

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.

Dare County Flood Map Update

The following is reprinted with permission from the Outer Banks Association of REALTORS®

Dare County Flood Map Update – IMPORTANT INFO

Dare County and its six towns have been working on how to respond to the preliminary flood maps that were released last June. While it looks like an appeal of the maps will not happen, there is ongoing conversation about developing local elevation standards for development and re-development purposes. The maps, when effective, would then only be used for flood insurance rating purposes.

Approximately 75% of Dare County properties currently in a special flood hazard area and required to carry flood insurance are coming out of the special flood hazard area altogether under the preliminary maps. The preliminary maps show some properties that are currently zoned in a VE – highest risk flood zone on the oceanfront moving into an X zone, which is out of the special flood hazard area and not required to carry flood insurance. Technically, a house could be built slab on grade in this zone. The maps, while developed using the latest, most advanced technology, do not take into consideration our high water table and heavy rains that cause flooding from standing water. They were developed to address flooding from storm surge.

OBAR and OBHBA recognize the potential of risky development when it comes to flood hazards under the new maps and have been part of the local conversations on how to move forward. The 90-day appeal process has still not yet started thus delaying the effective date of the maps even more. There is a timeline of things that need to take place before the maps become effective which now may not even be until 2019.

A meeting was held this week with Dare County Planner Donna Creef and members of the county’s Program for Public Information Committee to review and consider approaches to encourage property owners to maintain flood insurance coverage or purchase it if they have not had it. “Low Risk IS Not NO Risk”, “eXceed the X Zone”, and “LES is MORE (Local Elevation Standard) and other possible slogans for a public information flood insurance promotional campaign were discussed. The Committee also talked about how to move forward on developing elevation standards in various areas in unincorporated Dare County and how additions/remodeling/repairs might be treated.

WORD TO THE WISE: Banks are also looking at the impact of the preliminary flood maps if they become effective as presented. You may see banks imposing a flood insurance requirement to qualify for a mortgage in the future although the flood maps show the property in an X zone, where flood insurance is not mandatory. Also, be careful when advising clients as to the redevelopment potential of properties for sale based on the preliminary maps. With focus on the development of local elevation standards, creating new first/ground floor living space may still not be allowed when all is said and done.

Dare County has more information on the map process here.