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Neal Templin: How to avoid overpaying for homes near the water

Neal Templin, Rate.com on

Published in Home and Consumer News

Have you ever stood on a wind-swept beach, looked out at the endless expanse of blue and said to yourself: "This is where I want to spend the rest of my life."

Each year, thousands of Americans act on that powerful feeling, buying homes near the water. And New Orleans, Galveston, Texas, or Miami may be the perfect place for you, but it's better to know the risks before you buy.

Too many buyers follow their heart, not their head, a new study concludes.

A study from the National Bureau of Economic Research evaluated values of 3.8 million flood plain homes and concluded they were overvalued by a total of $34 billion, precisely because individual buyers often don't take into account the risks.

By contrast, businesses are more cold-blooded and get an almost 7% discount on average when buying a house that in the future could be flooded, said the study.

Governments could alleviate the problem by mandating better disclosure of flood risks during home sales, the study found. Some states have no requirements at all. By contrast, low-lying Louisiana requires disclosing if a property has ever flooded, its flood zone classification, and if there are requirements to maintain flood insurance on it.

 

The study looked at states with similar tough disclosure rules and concluded flood plain properties there sold at an average discount of 4.1% from homes that weren't in flood plains. That was nearly twice the national discount on flood plain properties.

"These findings point to an opportunity for both researchers and policymakers to identify and implement practices to ensure timely and effective communication of climate risk," the study said.

If your state doesn't mandate full disclosure, the onus is on you to find out about flood risks. Here are some things you can do:

Figure out if your home is in a flood plain. You can find free interactive flood plain maps at FEMA.gov. The maps will help you determine how deeply the property is inside a flood plain and what risks you face.

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