Update on Flood Insurance
Flood insurance is still a topic that is very confusing for everyone, including insurance agents.
After the debacle caused by the implementation of the Biggers-Waters Flood Insurance Reform Act last year, Congress has now partially reversed their legislation.
The Federal Emergency Management Agency (FEMA) released a bulletin stating that pre-FIRM subsidized rates can start being transferred to buyers and policy purchasers starting May 1. This is the first implementation phase of the new Homeowner Flood Insurance Affordability Act.
The idea behind this legislation is to get FEMA back in the black after the heavy losses experienced after Hurricane Katrina, by migrating from a "subsidized rate" to a "full risk rate". The initial implementation of the law (enacted in October, 2013) created a situation where some older homes located in "V" flood zones saw their flood insurance premiums increase sometimes up to ten times when the property was sold.
Because of the heated public protestations that these changes brought about, Congress passed additional legislation this year - the Homeowner Flood Insurance Affordability Act - to repeal part of the Biggers-Waters Act, instructing FEMA to carry an affordability study before implementing any rate changes, limiting the maximum annual raise to 18% of the existing premiums, and restoring "old" subsidized rates for some of those properties that had the misfortune to change hands during this period and got hit with a big rate increase.
Impact on Sellers: Any home that is sold from now on will have to be rated using an Elevation Certificate, and the rate for Flood Insurance for the new owner may be up to 18% above what you are currently paying. You may also be asked to comply with some of the current flood regulations such as vents in the garage.
Impact on Buyers: Be prepared to pay a higher flood insurance premium than the current owner is paying, and to pay for an Elevation Certificate (cost ~$350-450) if the Sellers do not have one. If the current rate does not reflect the full risk, expect this premium to go up every year (up to 18% per year).