Under new legislation Gov. Ron DeSantis signed into law earlier this year, home sellers in Florida will now have to disclose information about a property’s flood history to prospective buyers. This information could change the housing market in the popular state, which has already been impacted by climate and environmental changes recently.
Home sellers must provide a flood disclosure to a purchaser at or before the time the sales contract is executed, according to the bill. The act took effect Oct. 1, 2024. Previously, home sellers were not required to provide information regarding a property’s flood history.
A flood insurance disclaimer must be provided and state: “Homeowners' insurance policies do not include coverage for damage resulting from floods. Buyer is encouraged to discuss the need to purchase separate flood insurance coverage with Buyer's insurance agent.”
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Additionally, sellers will need to disclose whether or not they have filed an insurance claim or received federal assistance for flood damage to the property.
"Flood damage” is classified as:
- Overflow of inland or tidal waters.
- Unusual and rapid accumulation of runoff or surface waters from any established water source (river, stream, drainage ditch, etc.)
- Sustained periods of standing water resulting from rainfall.
Floods and insurance are causing problems in Florida
Although 99% of U.S. counties have been impacted by flooding, only 4% of homeowners have flood insurance, according to FEMA. Many individuals living outside disaster-prone areas — where flood insurance isn’t mandatory — may think they don’t need the additional coverage (although over 40% of flood insurance claims come from outside high-risk flood zones), while others simply misunderstand what home insurance covers.
Remember, no type of flood damage is covered by your standard home insurance policy. A separate flood policy must be purchased to protect against flood damage.
Lenders typically require coverage in high-risk zones, but premiums can vary based on your property’s flood risk. FEMA uses a system called Risk Rating 2.0 to adjust premiums, taking into account flood risk variables, including flood frequency, flood type, distance to a water source and property characteristics such as elevation and the cost to rebuild. On average, flood insurance costs $888 per year, according to a report from Policy Genius.
However, many insurance companies in Florida are leaving the state entirely, while others are choosing to hike rates substantially, limit coverage and cancel policies. For example, last summer, AAA announced it would no longer be renewing policies with home, auto and umbrella bundles in Florida, claiming the growing risk of natural disasters proving too costly for insurance companies to operate, while Farmers Insurance pulled out of Florida entirely, affecting 100,000 policies.
Eleven companies that offered homeowners insurance in Florida have liquidated since 2017, including five that liquidated in 2022, according to Newsweek. The fewer home insurance companies on the market, the more money residents will have to pay for coverage.
Could the flood disclosure rule drive down Florida home prices?
With this new rule in place, potential buyers could opt out of home purchases in increased numbers when confronted with a home’s flood disclosure, choosing to live somewhere with less risk and, in turn, save on insurance rates. Rising costs of insurance also have an impact on home values.
“Homeowners living in areas where insurance premiums are surging are at risk of seeing their properties gain less value than homeowners in areas with stable premiums — and in some cases, they may even lose money,” said Redfin Chief Economist Daryl Fairweather in a recent report. “Homes with low disaster risk and low insurance costs will likely become increasingly popular, and thus more valuable, as the dangers of climate change intensify.”
And condo prices in Florida have already been falling, in part because of an amendment to the Florida Condominium Act which mandated that condo associations maintain adequate reserve funds for maintenance and repairs. Condo associations must obtain a Structural Integrity Reserve Study (SIRS) by the end of this year outlining “the reserve funds required for future major repairs and replacement of the condominium property.”
The SIRS will assess “the estimated useful life and the estimated replacement cost or deferred maintenance expense of each item.” In accordance with these findings, any component of the building past its estimated useful life will likely be required to be repaired or replaced right away.
Because of this, many condo owners will soon face increases in their monthly condo association fees. These fees may even become higher than owners’ mortgage payments, leading many to sell their units. “Buyers don’t want a unit in an aging building requiring expensive mandated upgrades with hefty COA fees and special assessments,” Joseph Hernandez writes for Kiplinger.
The same can be said for a building or home with a high level of flood risk and/or a history of previous flooding. “For a comparable price, buyers can likely purchase a unit in a much newer building, avoid surprise increases in COA fees and special assessments and get vastly better value for their money.”
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