Advocates believe homebuyers will be able to make more informed decisions when rules requiring sellers to disclose detailed information about a property’s flood risk and history go into effect early next month. The changes could also have an impact on the state’s real estate and insurance markets. (Courtesy of Port City Daily/Mark Darrow)
NORTH CAROLINA — Advocates believe homebuyers will be able to make more informed decisions when rules requiring sellers to disclose detailed information about a home’s flood risk and history go into effect early next month, a change that could also affect the state’s real estate and insurance markets.
Read more: North Carolina and FEMA advance program to address flood-risk properties in Pender County
The North Carolina Real Estate Commission in March finalized amendments to the Residential Property and Owner Disclosure Statement, which is supposed to provide information about properties involved in real estate transactions, that will require disclosures about flood risk and history to potential buyers.
The REC unanimously approved a 2022 petition calling for increased transparency requirements, filed by the Southern Environmental Law Center on behalf of several nonprofits, including the National Resources Defense Council and the NC Justice Center.
The petition argued that home buyers in North Carolina real estate transactions have unequal access to information because sellers may now know important information that they were not previously required to provide. The state’s previous disclosures only required sellers to disclose that they had “actual knowledge” that the property was at risk of flooding, which NRDC argued was not specific enough.
Questions that sellers must answer in the new disclosures include:
Has any building on the property ever been flooded? If so, please indicate the number of times. Have you ever filed a claim with an insurance company, including the National Flood Insurance Program, for flood damage on the property? If so, please indicate the amount received. Do you have flood insurance on the property? If so, please indicate the current amount of your premium.
“Going forward, if a home seller knows about a flooding issue, they will no longer be able to hide it from a buyer,” Karen McNulty, director of litigation for the North Carolina Bar, told Port City Daily. “With home prices rising, it is more important than ever that North Carolinians are informed about the flood risk of the home they are considering purchasing. Given that the state is still recovering from Hurricanes Matthew (2016) and Florence (2018) and other flood damages across the state, this improvement is long overdue.”
Despite the potential impact on property values, SELC legislative counsel Brooks Rainey Pearson and NRDC attorney Joel Scata said they are not aware of any groups that oppose the new transparency requirements.
Port City Daily reached out to Cape Fear Realtors to ask about the group’s impact on the local market, but the news organization did not respond. The PCD has also asked the Real Estate Board to ask why there haven’t been detailed flood risk disclosure requirements until now, and will update when they receive a response.
“I think there’s a concern that individual properties that have had significant flood damage in the past or have had flood damage for a long period of time will lose value,” Scata said, “but overall there’s a recognition that flooding is getting worse, and because flood damage is so costly, I think people really need access to that information.”
A 2020 National Bureau of Economic Research study conducted by Miyuki Hino, a professor of urban and regional planning at the University of North Carolina, found that homes in U.S. floodplains are collectively overvalued by $34 billion, raising concerns about the long-term stability of the real estate market.
“The price penalty due to flood risk is larger for commercial buyers and larger in states where sellers must disclose flood risk information to potential buyers, suggesting that policies that improve risk communication may affect market outcomes,” Hino’s study states.
Despite the possibility that increased disclosure of flood history could lead to lower property values, Hino told NPR that transparency requirements are ultimately better for buyers and sellers.
She argued that not factoring flood risk information into property prices could lead to a “flood risk housing bubble,” which would be better allowed to deflate slowly than to destabilize the market with a sharp correction.PCD reached out to Hino for his thoughts on North Carolina’s new changes, but the media outlet did not respond.
Speaking to PCD on Thursday, Scata argued that the new disclosure requirements would increase access to information and make markets more efficient.
“New buyers are going to feel more comfortable with what they’re getting,” he said, “so overall, I think this is going to be a positive for the real estate industry in North Carolina.”
The rule change could also have an impact on state insurance marketplaces by giving agents more information to use in their sales, according to the Insurance Journal.
In January, the North Carolina Insurance Rating Board requested a 99% increase in homeowner insurance rates, citing increased flood and storm risk. North Carolina Insurance Commissioner Mike Causey denied the request in February. North Carolina Insurance Department spokesman Barry Smith told PCD ahead of a hearing in October that the department is reviewing NCRB data to determine future insurance rates.
Causey told PCD that the NCDOI supports the new flood risk disclosure requirements and encourages residents to check with their agents to make sure they have the appropriate insurance.
“Transparency and full disclosure are always good for consumers,” Causey said Monday. “The Real Estate Board’s flood disclosure rule is a good opportunity to remind residents that flood insurance is not included in standard homeowners and dwelling insurance property rates.”
Have a tip or comment? Email journalist Peter Castagno at peter@localdailymedia.com.
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