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Everyone Loses!

Education & Training with The Melanie Group

I lost three listings last week.  So what? –might be the reaction of some people. Let me explain. First of all, after 35 years in the real estate business, I don’t often have listings be withdrawn without being sold.   These were withdrawn, because I can’t lie to my sellers. I can’t sell these properties. They were: reasonably priced; in great shape; in my prime market area. 


In late summer, when all three were listed, I anticipated having three new families in their own homes for the holidays. What happened? Biggert-Waters, or “Biggest Failure” as I like to call it.  The Biggert Water Flood Law, which went into effect October 1, 2013, called for the following things: 1)Fill the $24 billion dollar “hole” left in FEMA funds post Katrina; 2)Make all flood insurance policy rates be “actuarially sound”, meaning the cost of the premium would reflect the real risk of the property being in the flood; 3)Have all policy holders contribute another 1% per year into a fund for future disasters ; 4)conduct an “affordability study” prior to implementing these changes.

Well, 3 out of 4 happened.  FEMA did not have time to do the affordability study, so it was never done.  My listings, in my little town which last flooded in 1972, were priced between $81,000 and $119,900.  Existing flood insurance premiums were $800 to $1000 annually. After October 1, those premiums were quoted as high as $9000 annually. 

Let’s do some math (something Congress didn’t do). There are 5.6 million flood insurance policy holders in the US. Divided $24 billion by $5.6 million, and you get almost $4300 per policy holder JUST to fill the hole, never mind buying insurance.  Next piece of math: Let’s find out if a buyer had an extra $9000 a year to spend on PITI (Principal, Interest, Taxes and Insurance) what it would buy:  At 4.75% for a 30 year term, it comes out to $143,775. Hello? If the buyers for these modestly priced homes had that much more money, they would be able to buy out of the flood plain. 

My little town of Jersey Shore PA (on the West Branch of the Susquehanna River, and NO WHERE near New Jersey), like many other little river towns, is old. It was founded in the days of trapping and lumbering, when there were no roads—the river was your road.  About half the parcels in my town are in the flood plain.

I titled this: “Everyone Loses”, and let me be specific: 

·My homeowners lose. They are all now landlords, and they wanted to be sellers instead. Whatever they would have done with the proceeds from their sales will now not happen. Would that have been a new car? Another piece of real estate? Who knows? 

·I lose, as do fellow real estate agents.  The estimated commission dollars are around $19,000. That’s $19,000 that isn’t going into my local economy. I make a point of “buying locally”, so my loss is my community’s loss. 

·My community loses. My community loses because this is going to create tenant occupied neighborhoods, and the strongest neighborhoods are owner occupied ones. 

·Other taxpayers lose: Any properties which sell will probably only sell to investors, for pennies on the dollar.  Those investors will (sensibly) appeal their assessed value, resulting in a lower assessed value.  That means my county, my borough and my school district will all need to raise assessed values on other properties, or raise millage, or both, to reach their financial needs.

Once again, as a taxpayer, business owner, and citizen, I am looking at the disastrous effects of “well intentioned” but very poorly thought out, legislation.