Did you know that the highest elevation in Florida is just 345 feet? However, our beautiful City of Sarasota and surrounding areas have a much lower elevation, sitting at an average of 16 feet above sea level. Given our proximity to some of the world’s finest beaches, it’s no wonder the issue of flood zones and flood insurance is a hot topic in real estate. Flood Insurance can be costly in any real estate transaction, especially if your client’s new purchase is located in a special flood hazard area. Understanding how flood insurance is handled in the Contract (defined below) and being proactive with your clients expectations and limitations can mitigate any potential surprises that may pop up during the transaction.
Flood Insurance and the Contract
Section 10(a) in both the As Is and Standard versions of the FAR/BAR Contract (the “Contract”) deal exclusively with Flood Zone and Elevation Certification. Given the risk of flooding in the State of Florida, the section specifically advises the Buyer “to verify by elevation certificate which flood zone the property is in, whether the Buyer’s lender requires flood insurance, and what restrictions apply to improve the Property and rebuilding in the event of casualty.” If the property is located within a “Special Flood Hazard Area,” flood insurance will be required per federal law should your clients obtain a loan for their purchase. A contingency period is created with the default timeframe being twenty days from the Effective Date. If within those twenty days, it is determined that for flood insurance rating purposes, the lowest floor elevation for the building is below the minimum flood elevation OR the property is ineligible for flood insurance coverage, the Buyer can deliver written notice to the Seller within the contingency period terminating the Contract and receiving a refund of the Deposit.
What if the Insurance Premium is Cost Prohibitive?
If the property is eligible for flood insurance coverage and lowest floor elevation is above the minimum flood elevation, a Buyer cannot cancel the Contract simply because the insurance is too expensive. With that being said, two avenues can eliminate this unpleasant surprise during the closing process. First, Rider H, the Homeowner’s/Flood Insurance Rider, further expands Section 10(a) and allows for the Buyer to set a maximum flood insurance premium amount they are comfortable paying in addition to a date by which they must secure a policy. This provides clients with peace of mind knowing that they will not suffer from the symptoms of sticker shock once they begin looking for insurance quotes. The second option is that in some instances, Sellers can assign an existing flood insurance policy to the Buyer at closing.
With the influx of out of state Buyers and ever rising flood insurance rates, agents and prospective Buyers must discuss this vital issue before submitting an offer on a property that will require flood insurance. By utilizing the tools outlined above, agents can carefully guide their clients through the murky waters of flood insurance. If you have any questions on this or any real estate topic, please do not hesitate to reach out to your trusted local real estate attorney.