Home Buyouts in Flood Zones — Would You Sell?

Since 1993, communities across the U.S. have bought thousands of damaged homes under buyout plans funded mostly by the Federal Emergency Management Agency (FEMA). In this attempt to save money by reducing hazards, the government eliminates homes in risky areas, which also reduces the barrage of flood insurance claims.

Relief for Flood Victims

New York Governor Andrew M. Cuomo is proposing to spend up to $400 million to buy 10,000 or so homes wrecked by Hurricane Sandy, demolish them, and keep the flood-zone coastline permanently undeveloped. Homeowners would be paid the pre-storm value of their homes to relocate, and those in especially flood-prone areas would be given extra financial incentives to move.

For those with astronomical home repair costs — especially ones related to mold, contaminated mud, and well water problems, the math just doesn’t add up to try and repair the home — even with financial support from the government. Many homeowners agree, having submitted buyout applications after Sandy because they feel the cost of repairs isn’t worth it.

The Hazard Mitigation Grant Program provides grants to states and local governments to take hazard mitigation measures after major disasters. Those who apply must reside within a presidentially-declared disaster area — although individual homeowners and businesses cannot directly apply for the program (this is done by local government or certain non-profit organizations).

Home Buyouts: Too Good to Be True?

Most shoreline residents will be reluctant to leave their homes — many of which have been passed down through several generations. But flood buyouts could appeal to residents concerned about higher flood insurance premiums and the possibility of never being able to sell their home in the future. Despite the damage and risk of another flood, these are people who chose to live by the water and may not want to be anywhere else.

There’s also quite a bit of waiting and red tape to go through home buyouts like these. There will be long waiting periods for real estate closings, and any money received from flood insurance will be deducted from the amount received by homeowners — a disappointment for those who used insurance money to make their homes habitable while waiting to close on their home sale.

New Jersey residents, offered home buyouts in flood-ravaged areas, are disappointed by the limited funding that will keep many from being able to make a fresh start elsewhere. After Hurricane Irene, the state Office of Emergency Management received $400 million in requests for FEMA grants from citizens — but only had $40 million to give out.

The Red Tape

The purchase program in New York– still awaiting federal housing agency approval — is part of a push from Governor Cuomo to have New York reconsider the way it develops its coastline. As a result, lawmakers will continue to debate what steps the state should take to protect against extreme weather.

These buyouts are voluntary, so no one has to move. Residents who may want to take the offer might want to do so quickly — before funding runs out. FEMA provides 75 percent of the money for property buyouts, while states work with local communities to fund the rest and to put the program in place. According to a CoreLogic study, just over four million U.S. homes are at risk for hurricane damage — totaling more than $420 billion in at-risk property value. The vast majority of flood victims will never be offered a buyout. This is why you should buy flood insurance — perhaps especially if you live just outside a flood zone, where you won’t be offered a home buyout if your home is destroyed.