The Real Deal / Tough year for beach-area values
Published 1:08 pm, Monday, April 7, 2014
By Evi Coghlan
2013 was a tough year for some beach-area properties, due to a double whammy that even the most experienced agents did not see coming.
The first whammy was buyer fear that, for the third straight year, we'd have a devastating weather event. On the heals of Hurricane Irene in 2011 and Superstorm Sandy in 2012, many potential beach-area buyers remained on the sideline, waiting for hurricane season to pass. Since that season doesn't end until November, portions of Westport's beach-area market were frozen for most of last year. Some owners who needed to sell -- mostly in Saugatuck Shores and Saugatuck Island -- took a beating, as buyers seeking to limit their risk were unwilling to pay close to asking prices.
Real Estate Listings
The second whammy was the new flood zone maps, which took effect July 1. We were expecting these, but did not know the specifics until the maps were released. The new maps not only caused more properties to be included in flood zones, but also caused changes in base flood elevations for most other properties. That knocked many out of compliance with FEMA elevation guidelines.
This is important because being compliant or noncompliant with FEMA elevations directly affects flood insurance premiums. Noncompliance also limits the dollar amount an owner can invest in property renovations without being required to jack up the house above the base flood elevation for that location. The cost of raising a house may approach or exceed $100,000 (including the house-raising itself, plus architectural redesign and implementation costs, retrofitting, re-landscaping and other expenses).
Other properties changed flood-zone classifications, causing changes in flood insurance premiums. For guidance, everyone looked to the Biggert-Waters Act of 2012, which sought to make the National Flood Insurance program more financially solvent by selectively raising premiums.
This actually had the opposite effect, causing uncertainty, confusion and speculation. The media ran amok with this issue, sensationalizing possible worst- case scenarios in which premiums could increase tenfold over time. Insurance agents seemed as confused, too, disagreeing with each other and unable to provide needed clarification, confidence or reassurance. Already-reluctant buyers became immobilized due to uncertainty about the future availability and cost of flood insurance.
As a result, the vast majority of what sold last year in Saugatuck Shores and on Saugatuck Island -- Compo Beach was less affected -- was either direct waterfront or new construction. Direct waterfront sold, as it always does, because anyone who can afford to buy it can also afford not to worry about how much their flood insurance might cost someday. New construction sold because, by design and by code, these homes were built in compliance with FEMA elevations. This not only means they won't have water intrusion in the event of future storms. It also means that their flood insurance costs will be lower than properties not in compliance.
So here we are in the spring of 2014. Will buyers' memories be short, as they usually are, and beach area properties will rebound? Legislation which would cap flood insurance costs for primary residences -- currently on President Obama's desk -- could be a big help. However, the events of last year have made both buyers and their agents much more aware of potential issues involved in buying homes in flood zones. They are much more likely to ask the $64,000 questions "Do you have an elevation certificate?" and "Is this home FEMA compliant?"
Those which are not may continue to suffer.
Evi Coghlan's "The Real Deal" appears every other Friday. She is a licensed real estate agent with the Riverside Avenue office of Coldwell Banker and a former marketing consultant to Fortune 100 companies. Evi may be reached at 203-247-6691, by emailing her at email@example.com, or visiting www.evicoghlan.com.