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Flood insurance issues for home sellers and buyers

Apr 30 2019

If you are selling or buying a home, be aware of changes the National Flood Insurance Program (NFIP) and flood insurance rates that began on April 1, 2015.  The changes to rate structures have significant impacts to property owners/buyers especially those with properties currently in a flood zone or properties newly mapped into a Special Flood Hazard Area with the redrawing of flood maps.

issues for sellers & buyers

Is the property in a Special Flood Hazard Area (SFHA)? 

Lenders require property owners within a SFHA zone to carry flood insurance. 

  • If a mortgage exists on the property, the property owner will be aware of the flood insurance requirement.  However, with redrawing of Flood Insurance Rate Maps (FIRM), properties that were previously not in a flood zone could find that they are now in a zone that would require flood insurance to obtain a loan. 
  • If there is no mortgage on a property, the owner may not be aware of the SFHA zone status of the property. Knowing a property’s SHFA status and flood insurance requirements upfront is important to avoid surprises that could bring a sales negotiation to a grinding halt.

Sellers can assign an existing flood insurance policy to a new buyer.  

flood insuranceThis is beneficial to the buyer because the existing policy history will transfer to the new buyer as well.  

  • If your current flood zone is being grandfathered, the buyer is able to take advantage of that as well. This can make flood insurance more affordable compared to buying a new policy.
  • If the SFHA zone has changed due to a redrawing of maps, NFIP will not change the flood zone if there has been continuous coverage.  Depending on the bank, sometimes they will not recognize this and force the policy rating to be changed.
  • Requests to assign a flood policy to a new buyer must be signed and submitted prior to the closing date.  Refunds are not issued from the flood carrier.  You can calculate what the estimated refund would be and handle it at closing.
  • If you are selling your home and believe map changes coming soon, it may be beneficial to buy a flood policy now and lock in at the preferred risk zone.

Elevation Certificates are required to purchase flood insurance when a property is in a SFHA zone and has Post-FIRM construction.  

  • Elevation Certificates are usually prepared by a land surveyor or engineer hired by the property owner or potential property owner.  It determines the relation between the house and the base flood elevation (BFE). 
  • ‘Post-FIRM’ construction’ is when a home was first built or substantially improved AFTER the community joined the regular flood program.  ‘Pre-FIRM’ is construction before  a community joined the flood program and their first FIRMs became effective.
  • If your home is built ‘Pre-FIRM’, you do not need an elevation certificate to purchase flood insurance regardless of the zone you are in.  
  • If a property is in B, C, or X zones, an elevation certificate is not required regardless of Pre-FIRM or Post-FIRM status 
  • Even if not required, an elevation certificate can help to reduce insurance cost.  The rate with elevation data may be less than the published rate.
  • Flood Zones can be obtained from Community Officials or Insurance Agents.  There is a Flood Risk Profile on floodsmart.gov that will give you a range of flood insurance premiums for your property.
  • See if your community is on the Flood Map Update Schedule, which could change a properties flood zone. 

Letter of Map Amendment (LOMA)

If your property has been mapped into a high risk flood zone but you do not agree, you may submit an application to FEMA for formal determination of the property’s location and/or elevation relative to the SFHA.  

  • This submission can be done online.  
  • Information needed includes location, legal description, use of fill and possibly elevation certificate.
  • Once reviewed FEMA will issue a determination document, either approving or denying the map change.
  • If approved, the classification change can result in significant flood insurance rates savings

Homeowner Flood Insurance Affordability Act of 2014 (HFIAA)

HFIAA slowed the elimination of flood insurance subsidies for properties in high-risk zones.  To compensate for the decrease in revenue, the new law calls for the addition of a surcharge on all policies that will be collected until, with limited exceptions, all subsidies are eliminated. The surcharge is a flat fee applied to all policies based on occupancy type of building  and is not associated with the flood zone or construction date (pre-FIRM/post-FIRM).

  • Annual Policy Surcharge - $25 or $250 
    • Policies for owner-occupied, single family detached buildings and individual condo units that are the primary residence of the policyholder along with tenant contents-only policies include a $25 surcharge
    • All other buildings include a $250 surcharge
    • Verification of Primary Residence Status form must be completed to receive the lower surcharge
  • PRP – Preferred Risk Policy          
    • Risks located in B,C, or X zones or newly mapped into high-risk zone may be eligible if they meet loss-history requirements
    • Buildings newly mapped into a high-risk flood area initially may be eligible for a lower-cost PRP rate in the year following a map change.  However, premiums may increase up to 18 percent each year as part of the premium rate revisions put in place by the act
    • In order to be eligible must meet PRP loss-history requirements



NOTE: This information is only a general description of flood insurance issues. Every situation is different and coverage varies based on the property and situation. Coverage may be subject to individual insureds meeting underwriting qualifications and to availability. For further information visit www.floodsmart.gov or contact a Murphy Insurance Agency Associate.

Total: 14 Comment(s)
Richard Davis
  For home buyers, it is really important to check if the area of the house is flood prone or not. To make sure there will be no problem in the future. Great blog by the way and thanks for sharing!
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  I have a fema flood policy I am selling my home will it transfer to the new buyer
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Murphy Insurance
Murphy Insurance  Talk to your agent about how to transfer the policy and then inform your real estate agent once you understand the process.
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  How do you know if it’s being grandfathered?
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Murphy Insurance
Murphy Insurance  You need to talk to your agent to review the policy and make sure that it can be grandfathered. if you are the seller, it's good to check in advance because that could be an advantageous issue to mention to prospective buyers. If you are a buyer and the property is in a flood zone ask about flood insurance before you make your offer because it's something you'd want to know about and discuss with your realtor and legal counsel.
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Bob Simoneaux
  Can I bond around flood insurace for an additional building the bank examiner is requiring a seperate policy At new higher rates
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Murphy Insurance
Murphy Insurance  Not sure exactly what you mean by "bond around". However, if you already have a flood policy on your home, and now have a new structure that needs flood insurance that is normal. Every detached structure needs to have its own policy. The rates on the home are typically lower than the rates charged for other types of structures, which may be what you are referring to. It can't simply be added to your existing flood policy for your home. Every situation is different, so talk to your agent to discuss options. Hard to answer with a brief description.
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Michelle Wilson
  I have a property that is under contract to close at the end of the month. My flood insurance policy expires this week March 9th. My policy is 3,000 I am out of funds and cannot afford to renew. Do I have to renew if so can I purchase just for the days for my closing. I am unable to afford the 3,000 dollars. Thanks.
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Murphy Insurance
Murphy Insurance  Unfortunately, policy will NOT renew and will lapse unless it is paid in full. However, if you pay the premium, once the property is sold, the policy can be cancelled and you (the insured) should receive a prorated refund. Confirm with your agent. If you have committed to transfer the existing flood policy over to the new buyer, then speak to your Real Estate Agent because this is important. Perhaps you can put the premium on a credit card or find another way to pay. Talk to your insurance agent, and real estate agent about options. Don't let the policy lapse without having those conversations. Again, if you do pay the premium, you should get the bulk of the premium back on a prorated basis.
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Murphy Insurance
Murphy Insurance  Clarification. The refund would only occur if you cancel the policy. If you transfer the policy to a new buyer because you've made that arrangement, you should work with your attorney to have the buyer reimburse you on a prorated basis for the premium you have paid for the reminder of the policy term. The flood insurance company will not reimburse because they are simply transferring the policy. Just wanted to be clear on that.
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  Who has to notify insurance company when the insurance is transferred?
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Murphy Insurance
Murphy Insurance  The current property owner (seller) should speak with his agent through which the policy has been purchased. The agent will instruct you. Basically, the Seller will sign a transfer. However, the Buyer also needs to be involved in the process because they have to also sign paperwork to assume the policy and confirm that they are occupying the property. Always keep your agent involved and informed.
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  I'm looking to purchase a home and am being told the current owner's flood insurance is not transferable. Why would this be?
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Murphy Insurance
Murphy Insurance  Based on our experience, you should be able to transfer the policy unless perhaps there is some unique situation. If the policy is issued through NFIP, there shouldn't be an issue. Speak with your home insurance agent and perhaps they can assist you in working with the seller. If you are a Murphy Insurance client, please call us and speak with one of our Associates.
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