Don't Fear Flood Data: Here's How It Helps Clients

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Chicago real estate pro Mabél Guzmán, ABR, CIPS, may not live in a coastal area of the U.S., but she still makes it a point to talk flood risk with her buyers. Flooding is the most common and costly natural disaster in the U.S.—and it’s not just the coasts that are at risk. Some of the worst flooding damage in recent years has occurred inland due to heavy rainfall and overflowing rivers. Also, 500-year flood incidents suddenly don’t seem so rare as extreme weather and sea level rises increasingly threaten areas across the country every year.

“There’s a lot of education we need to do as real estate professionals on this,” says Guzmán, a broker with @properties and vice president of association affairs at the National Association of REALTORS®. “That home may not be by a river, but it can still have a flood risk. The lender may not require flood insurance, but that doesn’t mean you don’t need it.”

What’s more, FEMA maps—those created by the Federal Emergency Management Agency and relied upon by floodplain managers and lenders—only include the nation’s largest waterways and rivers where government engineers can get the most precise, on-the-ground measurements. These tend to reflect only the highest population areas around the country. While rainfall is a factor in these major river studies, FEMA does not map flooding due only to rainfall that can occur away from rivers or the coast. As a result, most people who live near smaller channels or don’t live anywhere near a stream or river may be buying or building a home in harm’s way and have absolutely no way of knowing the risk. That is, until now.

Assessing Risk

In late June, nonprofit research firm First Street Foundation unveiled a searchable website, Flood Factor, that allows users nationwide to enter an address and run a flood risk calculator. The tool uses the FEMA major channel studies, combined with high-resolution data obtained from airplanes and satellites, to create the first national flood model that will identify flood zones along all streams and rivers, not just the major ones. It also shows where heavy rainfall flooding occurs even when it is not connected to a waterway. This allows First Street to give owners and buyers a risk factor for every property in the U.S. First Street has validated its model with FEMA’s study data and says it has found the results stand up remarkably well and are accurate by comparison. (Update: On Aug. 26, realtor.com announced the integration of Flood Factor into property listings. The new feature supports NAR policy to provide accurate flood mapping with full transparency and disclosure.)

Using its risk assessment, Flood Factor has identified about 6 million high-risk properties that are not currently identified on FEMA maps. Sellers and buyers may have questions about why these properties are suddenly surfacing as a flood risk.

If a buyer asks about a Flood Factor rating, be prepared to explain that every home in America has some flood risk, and diagnostic tools like First Street’s can help determine whether further investigation or possibly a home inspection from a qualified flood risk professional makes sense, says Austin Perez, senior policy representative for NAR. “It’s like when you go to the doctor; they have all these diagnostics like blood tests that aren’t themselves conclusive but could indicate the need for more comprehensive and detailed testing to ensure there isn’t a problem,” Perez says.

Overall, First Street’s new Flood Factor tool reveals nearly 15 million homes and commercial properties across the U.S. are at “substantial” risk for flooding.

Avoid Liability

If you sell a home that subsequently floods, and there are any questions about the seller’s disclosures, some real estate agents and brokerages have been named in the lawsuits. In a few cases, they’ve been held liable for not taking more steps to disclose flood risk.

NAR recently commissioned the Legal Research Center to investigate flood-related lawsuits over the past two decades and its potential implications for real estate professionals and brokerages. The Legal Research Center reviewed more than 4,500 flood-related cases between 2000 and 2020 and found 61 cases that specifically involved a real estate professional or brokerage.

The majority of those cases were brought by buyers against sellers’ agents or brokerages and alleged fraud, breach of fiduciary duty, negligence, and intentional misrepresentation or omission. Further, six of these cases resulted in significant verdicts and awards against the real estate licensee and brokerage.

The Center’s study shows that litigation was far more likely when buyers learned about flooding problems only after they purchased the home, Perez says. The research further suggests that the strongest defenses involved were when the buyer had access to multiple sources of flood risk information and were less reliant on the seller’s disclosure and representation of the property’s condition.

Arming clients with more flood data can not only help avoid surprise purchases of high-risk properties but also better manage client expectations and avoid buyer remorse or even litigation, Perez says. For example, agents can point buyers to an arsenal of information from FEMA, Flood Factor, seller disclosure forms, and even C.L.U.E. (Comprehensive Loss Underwriting Exchange) reports in helping them to better assess the risks. A buyer can request from a seller to view a C.L.U.E, report, which contains up to seven years of personal claims history on the property. Buyers can then see if any claims related to flooding have been filed—an added layer in assessing risk.

NAR is also continuing to work on legislation to release related federal disaster payments and/or claims to the National Flood Insurance Program administered by FEMA.

Be Ready for Conversations About Flood Risks

Flooding certainly can be a deal killer if the information surfaces late in a real estate transaction. But failing to take advantage of these new flood data tools or discouraging clients from considering them can be a costly mistake to the real estate agent and seller. Here are some tips to addressing flood risks in transactions:

Answer questions with resources and facts. Buyers may have a lot of questions once provided with information regarding flood risks to the property. Be ready to point to multiple credible sources of property flood information including FEMA, floodplain managers, insurance agents, and tools like First Street’s. But make clear that these are diagnostic tools that can only help a buyer perform his or her due diligence on property. NAR released guidance to help. You also may be ready with a list of qualified flood-risk professionals or home inspectors who can help buyers answer more detailed questions.

Talk flood insurance. Even if a lender doesn’t require buyers to purchase flood insurance, that doesn’t necessarily mean they don’t need it. Flood damage is almost never covered in standard homeowner insurance policies and requires homeowners to get supplemental insurance either from the NFIP or private insurance brokers like Lloyd’s of London. NAR created a brochure in collaboration with FEMA, “A Real Estate Professional’s Guide to Discussing Flood Insurance,” that provides tips on how to talk to buyers about flood insurance so they can make informed decisions about it.

“The data indicates that the low level of demand for flood insurance is largely driven by misunderstanding of risk, lack of knowledge of cost, and confusion around private versus government flood insurance,” says Philip Trocchia, a professor at University of South Florida and author of the Neptune Consumer Survey of Flood Awareness. The average flood insurance policy sold in 2019 cost about $708. Many consumers declined coverage believing it was more expensive or unaware their property had any type of flood risk, the survey shows.

Learn about required disclosures. Real estate professionals have several legal and ethical obligations when it comes to flood-related disclosures in a transaction. Watch this video featuring Deanne Rymarowicz, NAR associate counsel, to learn more about your disclosure and obligations in talking flood risks to your clients.

Don’t overstep. Be the information source, not the flood expert. As always, avoid making statements beyond your license and training. For example, avoid discouraging clients from considering flood insurance or from considering multiple sources of flood risk information. “By giving buyers more information up front, you can help build confidence,” Perez says. “This also keeps REALTORS® at the center of the transaction and as the primary source of property information, which remains a top strategic priority for NAR.”