Do you remember those times your mom, dad, grandma or grandpa sat you down, looked you square in the eyeballs and had a good ‘ole fashioned heart to heart chit chat? We remember those sessions quite well and believe those are many of the conversations that left a lasting impression on us as human beings. It’s those genuine conversations that contributed to our society being upstanding members the community.
You are probably thinking… why are we, a real estate company, talking about having heart to heart conversations between family members on a real estate website? It’s because we view our friends, colleagues and clients as one big happy family and often times hard conversations are necessary between those you appreciate, love and respect.
Let’s fast forward to a heart to heart conversation that seems necessary based upon recent events, that being Hurricane Harvey and the impact it will or will not have on the local real estate industry. In the last week, we have witnessed an onslaught of confusion and misinformation since the storm dust has settled, whether it be with a competing realtor colleagues, clients or friends and family so we felt it was best to address the information to sort out facts from fiction.
If my home did not flood, can I sell it for more?
The answer to this question is NO! We are sorry to burst your little excited bubble, but the fact your home did not flood and others nearby did will not increase your sales or list price. It will make your home more marketable and/or desirable, but there is a slim chance you will be able to net more dollars purely based upon the fact the property didn’t flood. The price a home will sell for hinges on these factors:
- what a willing and able buyer will pay for that particular home based on its location and condition,
- what other homes with similar square footage and age have sold for in the immediate area and
- what an appraiser says your home is worth based on sold data from recent sales.
The sellers who hike their sales price anticipating a buyer will come running because their home did not flood will be shooting themselves in the foot right out of the gate. This action will most definitely alienate the real buyers in the marketplace as they will overlook your home because it exceeds their budget and sold prices for the immediate area. This is similar to those sellers who have recently endured a seller’s market and had the market advantage, but the market has shifted into a balanced or buyers market. If a seller is still holding onto the reins for dear life because they believe they have control when in reality they do not, the seller loses in this scenario because the market defines sales prices, not a sellers wants or needs.
Can I purchase a home at a discount if it flooded?
Possibly, but keep reading!
Let’s assume you do end up purchasing a home that flooded at a deep discount below what it would have sold for pre-flood. This home will always have a stigma of having flooded and will limit your ability to sell to the largest buyer pool. The bulk of the buyer pool will likely never be able to afford the mostly flood insurance required to purchase this home. If affordability presents challenges, the seller will now be faced with only allowing cash purchases. We understand there is loads of cash flying around the United States, but even cash buyers are diligent in their effort to purchase.
Something to ponder before you even consider purchasing a home that recently flooded or is in the 100 year flood plain, every few years Congress attempts to eliminate flood insurance coverage all together. Yes, you heard that right! This is an annual uphill battle for local, state and national real estate associations as they lobby every time flood insurance is in jeopardy. They do this to keep the coverage in place for homeowners for natural disasters just like Hurricane Harvey and because they know without flood coverage in place it would dramatically change the real estate landscape.
While you may purchase a home at a discount, your potential buyers will be savvier than ever considering the recent flooding events noted below. They will ask more questions and often will not make offers in line with the current market knowing they could potentially take a financial hit when selling the property down the line. We strongly encourage you to ponder the future repercussions of buying a flooded home or even a home that has been repaired since flooding, more than pondering the immediate financial pros.
Past vs Future
Past performance is a really darn good indicator future results. This is true for all aspects of life and most definitely for real estate. This is how home prices are determined – recent sales, predict current value for a home that is selling today. So, let’s look at a few past natural disasters in the Southeast Texas area and how real estate suffered or prevailed in the months following.
1994 Flood of Montgomery County
In October of 1994, a slow moving rainstorm dropped 20 to 30 inches of rain on portions of Montgomery County. In 2004, when someone asked Jim Adams with the San Jacinto River Authority if this could happen again his response was “yes.” Fast forward to 2017, where we just experienced Hurricane Harvey sitting on land for days spinning water from the Gulf onto many of these areas. Most recently, there were sections of Montgomery County that saw once again 20 inches of rain proving the point that Jim Adams was correct.
While many of the flooded homes from 1994 were purchased by federal buy out programs many were not. Since 1994, the growth of residents and housing has surged and due to limited land available many of the newer communities have popped up in flood prone areas. After the 1994 floods, short term lease prices surged but real estate sales did not take a direct hit. Yes, many homes were purchased with federal dollars but residents didn’t give away their home, but rather worked feverishly to whip it back into shape so the occupant could keep plugging along in the area they called home.
Hurricane Rita, a Category 5 hurricane, made landfall in Galveston, Texas on September 13. This didn’t impact the Houston area as much as Hurricane Harvey did, but the southeast quadrant (counties east of Harris County and Montgomery County) were the hardest hit. Power was out for weeks and of course devastating destruction resulted from a hurricane hitting a coast line and plowing northbound. But you know what, these residents bounced back in no time. Short term lease prices also surged as a result, but the market remained balanced.
Hurricane Ike, a Category 4 hurricane, made landfall in Galveston, Texas on September 13. That storm delivered a wrath on Southeast Texas that lasted several months as Texans pulled up their bootstraps and put their lives back to together. The storm presented challenges for residents 100 miles north of the Texas coastline. Several Texans were out of jobs for months, gasoline was scarce, electricity in some areas was non-existent for weeks. But again, we are Texans! We plowed through this time of unexpected turbulence like a champ. Those residents who endured complete losses or destruction needed temporary housing and once again, therefore, rentals surged one again but several months later the real estate market was operating like normal.
The Tax Day Floods of 2016
We just witnessed the chaos that a hurricane unleashes on an area, but slow moving torrential downpours are capable of wrecking just as much havoc on an area as a hurricane making landfall. That’s what happened in April 2016. This storm unleashed the following rain totals:
- 1″ of rain in 5 minute span
- 4″ of rain in an hour span
- 16″ of rain in a 12 hour span
During this flooding event, a majority of the flooding occurred in Southwest Houston areas covering the following counties Harris, Waller and Fort Bend with the highest rainfall total being calculated at 23.5″ being recorded in 14.5″. The properties that flooded were as a result of heavy rain over a short period of time and area reservoirs needing to release water to prevent wrecking unnecessary havoc on their systems. Just like the previous mentioned flooding and storm events, short term rentals surged as those who flooded could navigate repairs on their current homes or attempt to locate new dwellings after receiving a buyout.
The Memorial Day Floods of 2016
In May 2016, a month after the Tax Day Flooding another slow moving storm unleashed a tremendous amount of water on the Austin and Houston areas. Flash floods submerged major highways and homes when over a foot of rain fell in 10 hours. This storm reached the threshold to receive disaster relief from FEMA. More than 13,000 residents were approved for disaster assistance. This flooding event caused $459.8 billion dollars worth of damages to the effected areas. While more Texans took advantage of the FEMA buyout or assistant dollars, many homeowners flocked to short term rental options as well as they were eager to put their homes back together to resume life as normal.
Do you see a pattern here?
While these above mentioned events were similar in nature, flooding or destruction occurred many homeowners choose to stay put where they had planted roots. The common factor is these folks decided to seek short term living arrangements as they literally put their lives together one day at a time. Real estate from 1994 to 2017, didn’t take a plunge nor did prices surge because homes were not flooded. FEMA completed buyouts, gave assistance and yes some homeowners realized they were ready to walk away and chose to sell at a discount, but these homes are still and will always be in flood prone areas.
So how does one purchase a new home while they have a home thats been classified as a total loss on their hands?
The answer to that question is with a FHA 203(h) loan. There are a rules that one must adhere to in order to qualify for this program.
- Their current personal home, apartment or rented home must be in a President Disaster Declared Area – this can be verified by visiting the FEMA website. A second home or home owned as a rental property will not count.
- The borrower must meet FHA guidelines, which include being under the FHA loan limits, meeting a minimum credit score defined by the lender and the FHA case number (ordered by the lender) must be ordered within one year of the declared disaster.
- The borrower must provide documentation their current home was destroyed to the extent it cannot be repaired/replaced.
- The borrower will need to prove they are working with their current mortgage company to appropriately address their current mortgage and all insurance proceeds received MUST be applied to the current mortgage.
If you believe you are in a situation where you have a complete loss on your hands and believe you qualify for a FHA 203(h) based on the criteria above, we recommend connecting with a vetted loan officer to investigate if this program is suited for your situation. Below we have listed our trusted lending professional who is well versed in the FHA 203(h) lending process.
Annie Mac Mortgage