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Buying Real Estate in a Flood Zone
May 20, 2010

Nearly every part of the United States is prone to some type of natural disaster, including flooding. So when you see a house listed in a flood zone that alone may not be enough reason to turn it away. Buying real estate in a flood zone is risky, but it also may offer some rewards (particularly price wise). Its all about your comfort zone.

Flood Zone Designations:

First things first. You need to understand how Flood Zones are categorized. Currently there are nearly 20,000 areas in the US alone that have a flood zone designation. A community given this designation by FEMA is eligible for the National Flood Insurance Program. This program bases its rates on the level of ascertained risk.

The first Flood Zone is V. This means that the house was built in an area lower than the normal flood elevation (such as housing on a beachfront). The main risk here are fast, furious waves. If youre thinking of buying a Zone V house, get yourself a good surfboard and realize that you will be required to have flood insurance by law. Because of the elevation, its not recommended that you use the lowest areas of the house for storage or living. Look for a V house thats got piers, posts or columns to elevate it, keeping essentials like electricity away from water.

Flood Zone A is the worst of the hazard regions (think of ways to become one with the fish). Throughout this area lakes or other bodies of water are prone to rise and overwhelm the land. As with Zone V, flood insurance is mandatory. When looking at houses in Zone A, look for those where the electric and plumbing is well above the base flood elevation level. If they are not, you would have to spend the money to make that change to better protect your home. It's a good idea to have emergency evacuation plans if you live in Zone A.

The third flood zone designation is X. If you find a house in this zone, flood insurance wont be mandatory (but its typically recommended). Flooding is possible, but the risk is low. Similarly, D zone is considered a region where no insurance would be required but the flood risk hasnt been assessed fully. If youre not sure about a region where youre looking at homes, you can go to the local town hall and ask for flood zone maps. Alternatively your realtor should know if the house youre considering has been listed with a flood designation. A house built before 1968 was not subject to Base Flood Elevation laws, so those properties need to be reviewed even more care than others.

Preparing to Buy a House in a Flood Zone

If you decide to go ahead and buy a home in a flood zone you may need additional reports on flood history at the home, as well as an inspection that specifically looks for water damage. Most banks will require that you have flood insurance when you close on the property. The historical report most people obtain is the CLUE (Comprehensive Loss Underwriting Exchange Personal Property). This provides 7 years of history, and whether the flooding was severe enough to require a claim against insurance. Another report you may be asked to obtain is a Transfer Disclosure Statement. This comes from the seller and includes information on previous house problems including those from water.

Bear in mind that sellers already know that a house in a flood zone can be a hard sell. This gives you a point of negotiation against the selling price, and possibly other concessions for closing.