The devastating impacts of flooding are all too familiar for Americans. Hurricanes, tropical storms, and slow-moving thunderstorms can and often do lead to flooding in wide swaths of the country, especially in coastal areas. As a result, homeowners are often left with homes that are uninhabitable, and businesses are forced to shutter.
Climate change has worsened not only the effects of these kinds of weather events but the frequency too. But most homeowners do not have flood insurance, and what’s worse, many buyers are unaware when purchasing a home of its flood history. Armed with new research on the steep costs of not disclosing flood history and claims, advocates are pushing states to strengthen or introduce new flood risk disclosure laws.
Last summer, in its ongoing advocacy for stronger real estate disclosure laws, the Natural Resources Defense Council (NRDC) commissioned a study to look at how many homes have been damaged by flooding and the associated costs to a homeowner. The study focused on three states that have some of the highest risks for flooding: North Carolina, New York, and New Jersey.
Calculating just how many homes have been damaged is not easy. The largest flood insurer in the country is the National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA). Data from NFIP is publicly available, so when floods occur, researchers can look at how many homes have been flooded, but only those insured through NFIP. For countless others whose homes have flooded, there was no policy. In the United States, it’s estimated that less than 4 percent of homeowners have any flood insurance coverage.
One of the most striking figures that emerged from the NRDC report was the stark difference between the average annual costs due to flooding for homes that have not previously flooded versus those that have. For homes that had never flooded, the average annual cost was $61. For those that had sustained flood damage before, the number shot up to $1,210. “If you don’t know your home has been previously flooded, you’re taking on huge financial risk,” said Larry Baeder, a data scientist at Milliman, the consulting firm that authored the report. “You have no clue you potentially have this cost down the road.”
While the numbers are already concerning, they could continue to rise depending on the future impacts of climate change. For example, in North Carolina, a state that has endured numerous hurricanes and sustained extensive damage to property, the $1,210 average annual cost for previously flooded homes could jump up to $1,400 or $2,000 per year, according to the NRDC study. “Depending on where we end up on the spectrum of climate change results, these costs are going to potentially be worse down the road, which I think is a strong argument for disclosure laws,” Baeder said.
The NFIP was first established in 1968 in order to help reduce future flood damage and protect property owners. Since then, many states have created some form of flood disclosure requirement for home sellers, but there is no federal requirement to disclose information about a property’s history of flood damage or a property’s flood risk. Since 2018, a year after Hurricane Harvey devastated the Houston area and caused $125 billion in damage, the NRDC has been pushing states to adopt stricter disclosure laws concerning flood risk.
The organization undertook a 50-state review in partnership with Columbia Law School looking at which states have good disclosure laws and which ones need improvement. In the analysis, NRDC found that 21 states have no disclosure laws and the rest have a “hodgepodge” of requirements when it comes to flooding. In Missouri, there are no disclosure requirements regarding flooding, but homeowners are required to disclose whether the property has ever been a meth lab. In one of the states with the strongest flood risk disclosure laws, Louisiana, the rules are detailed and specific, and what NRDC’s Joel Scata called one of the best in the country.
Scata and the NRDC team have been working with a other organizations to establish laws in New Jersey at a similar level to Louisiana. A flood risk disclosure bill passed the New Jersey state legislature this past March but was conditionally vetoed by the state’s governor in May. If signed into law, the bill would add new questions to the disclosure form sellers are required to provide to buyers before the property goes under contract.
“I think there’s a misconception that people don’t want to disclose because it will negatively impact the market,” Scata said. However, he pointed to Texas strengthening its flood risk disclosure laws recently and how the move did not slow down the market as a result. “In New Jersey, I’d argue the market won’t crash anytime soon because of disclosure,” he said.
The real estate industry is supportive of stronger flood risk disclosure laws, but industry organizations like the National Association of Realtors (NAR) believe a lot more can be done outside of new legislation to better inform buyers of risk. Austin Perez is a senior policy representative for NAR and advocates for a number of issues within the industry, including federal housing, valuation, insurance, and commercial issues. He sees the flood risk disclosure issue as one with a lot of misconceptions.
For one, he believes the idea that many states don’t have flood risk disclosure rules isn’t necessarily true. “All 50 states have a requirement to disclose known material facts about a property,” Perez said. “I can’t think of anything more material than flood damage to a structure.”
He added that there are a number of states deciding what form the disclosure must take. On what purpose the disclosure form serves in a transaction, Perez sees it weighted more toward the seller than the buyer. “The primary goal of a disclosure form is not to help a buyer get info, it’s a liability risk management tool for the seller,” Perez said.
Instead, he says the burden is on the buyer to do their due diligence, investigate the property and make a decision. Where he thinks there could be a lot of improvement is within FEMA’s flood maps. The agency’s floodplain maps are frequently used and cited during real estate transactions and are required to be updated every five years. More than 1.2 million miles of the U.S., has been mapped out, according to FEMA.
However, industry experts say the maps are often outdated as they only reflect historical data and do not cover certain geographic areas of the country. With limited resources from Congress every year and a high cost to undertake the necessary study to create an accurate flood map, the highest risk areas tend to get the most attention from FEMA, but that leaves out inland or low-lying areas that still can sustain significant flooding, like Houston, Perez said, adding that mapping floodplains of the future for new development projects is important as well. To even better inform buyers, he argued, FEMA could make the process to obtain flood claim data easier and more efficient for buyers, and to ensure flood maps are updated.
“NAR members aren’t flood risk experts,” Perez said. “I’m not trying to say we don’t want more regulation…they want to disclose, they want buyers to remember them for giving them important information and then recommending them to others. We want disclosure laws and we also want effective tools for consumers.”
For more on leveraging climate tools and data, see the ULI/LaSalle report, How to Choose, Use, and Better Understand Climate Risk Analytics.