Virginia requires real estate agents to reveal whether a property is in a military airplane noise zone, has defective drywall or has ever been used to manufacture methamphetamine. After the flood maps were updated, the industry wondered what new disclosure rules would be mandated. Should homeowners or their agents be required to reveal to potential buyers if the house had been flooded? Should they have to tell how much flood insurance cost and was estimated to rise?
Within a year, state lawmakers passed a real estate disclosure law that the industry hailed as a major step forward. “We are immensely satisfied,” Deborah Baisden, then president of the Virginia Association of Realtors, said of the law.
While the law encourages home buyers to exert due diligence in investigating the risk of living in a flood hazard area, it also explicitly states that the seller of a home is not obligated to disclose whether the home is in a zone that FEMA regards as high risk.
Some city officials said the law did not go far enough. “It’s a nondisclosure disclosure,” Meg Pittenger, an environmental manager for the city of Portsmouth, Va., told a reporter for The Virginian-Pilot. She added that it should have required sellers or agents to inform prospective buyers whether a property lies in a flood zone.
Flood risks are easily overlooked because past flood damage often goes unreported and, as in Virginia, the burden of discovering it falls to the buyer. LexisNexis, a news and legal research company, can supply sellers a report with the history of flood claims on the property, but buyers usually do not know to ask for it. FEMA collects information on federal insurance claims for homes nationally, but the agency has been reluctant to make it public for privacy reasons.
States and local real estate agents are handling disclosure differently. In Florida, real estate agents have to notify purchasers if a property is subject to natural hazards, but the law applies only to a limited area along the Florida coast and has no penalties for noncompliance. And in 2010 lawmakers stripped the requirement to disclose a property’s windstorm mitigation rating.
California, Washington and Pennsylvania, on the other hand, require the disclosure of past flooding or susceptibility to future flooding. In New York, sellers are required to disclose whether a property sits in a flood plain. “It may be a matter of life and death,” said State Senator Stewart Greenleaf of Pennsylvania, who sponsored a state disclosure rule that became law this year.
Some real estate agents around Boston have begun taking prospective buyers to newly repaired multimillion-dollar sea walls built to protect homes from storm damage. They also have begun to encourage clients to increase the marketability of their properties by installing storm-resistant technology, including steel beams and window flaps that allow water to flow in and out of a basement during a flood.
Not everyone favors more disclosure, said Daren Blomquist, the senior vice president of communications at Attom Data Solutions, the real estate data tracking firm that serves brokers, lenders and insurers. After strong objections from real estate companies, which threatened to stop providing data, his firm took down its web page that integrated real estate listings with plot-by-plot information about the risks of floods, hurricanes, wildfires and other natural hazards.
“The pressure was intense,” he said, adding that the company still provides this information on separate web pages.
Banks and Insurers Try to Adapt
It is not just property owners, buyers and sellers who are struggling to estimate the potential financial impact of climate change on the real estate market. These risks compound as individual mortgages get bundled and sold as securities. In his April report, Mr. Becketti, the Freddie Mac economist, emphasized how difficult it was to predict whether the bubble in coastal real estate would slowly deflate or suddenly pop.
“Will the value of the house decline gradually as the expected life of the house becomes shorter?” he wrote. “Or, alternatively, will the value of the house — and all the houses around it — plunge the first time a lender refuses to make a mortgage on a nearby house or an insurer refuses to issue a homeowner’s policy?”
The real estate and mortgage markets have been slow to confront climate change, said Albert Slap, an environmental lawyer and the president of Coastal Risk Consulting, a company that advises communities on how to prepare for sea level rise. Most buyers of securities, for example, underestimate the risk in their portfolios by relying on FEMA flood maps, he said. Strictly backward looking, these maps are based on floods that have already occurred.
To make matters worse, the National Flood Insurance Program is more than $20 billion in debt. After several major coastal storms, Congress tried to fix the program, passing a law in 2012 requiring that insurance premiums be recalculated to accurately reflect risk. Coastal homeowners rebelled, arguing that the legislation made insurance unaffordable, and in 2014 Congress repealed parts of the law.
George Kasimos, a real estate expert in Toms River, N.J., said homeowners had good reason to react. “A homeowner may be approved for a $300,000 mortgage with a $3,000 a year flood insurance premium,” he said, but the same person’s loan application would most likely be rejected with a $10,000 flood insurance premium. As insurance prices rise, some home purchases will become cash only, squeezing more middle-class and lower-income buyers out of the market.
The North Carolina shore has been especially popular among baby boomers along the East Coast looking for an affordable retirement option.