Lessons Learned From Making An Offer On Flooded Home

Anybody that works in real estate understands the emotions that both buyers and sellers go through.  We buy houses around Madison WI and Dane County on a regular basis and see this emotion manifest itself in all sorts of ways.  Now imagine dealing with a family that just lost everything, from the personal property right down to the studs (or drywall at least).  They want to sell the house fast and avoid repairs or mold infestations.  While that's what our company does, it makes the conversation even harder when you have to explain that we need to account for the stuff I outline below and make an even lower offer than normal.

While that should paint the picture of how much more difficult negotiation can be under these circumstances, there are all sorts of additional considerations one needs to take into account when making an offer on a previously flooded home.  There's FEMA to deal with, additional costs for the buyers, as well as unusual local market fluctuations that can turn a good deal into a bad deal real fast.  Here are some of my takeaways from this experience.  FYI the house of reference was in Cross Plains, WI which was hit very hard in August 2018 with extreme flooding.

FEMA & Flood Insurance

Obviously, when someone tells you they want to sell their house to avoid having to do all of the repairs themselves AND it's all due to flooding, you know you're going to need flood insurance.  This house was also in a floodplain and I received a quote for $3,500 per year.  I was blown away by the cost especially considering what it actually covers.  While most buyers would say that's ridiculous and I'm not paying that much every year for flood insurance, it's not really up to them if they're financing with just about any lender.  They are going to require flood insurance, perhaps whether it's in a floodplain or not, but for sure if it is in a floodplain.  So make sure you or your buyer keeps this in mind and accounts for that extra cost.

Market Conditions & Eventual Listing Price

Next, consider what a flood does to the local market conditions.  There are many things to consider but primarily for us it was the following:

• How many other homes are also likely to go on the market in the aftermath of a flood because people either don't want to deal with repairs or they want to avoid flooding again?
• Will the flood happen again?  Is the house near or on a floodplain?  You can bet this will have an impact on the interested buyer pool.
• Perceived risk or value in buying a flooded home.  I figure at a minimum in our area, knock $10,000 of the listing price, particularly if a flood has happened before.
• While I always encourage the use of a realtor with local knowledge, it's even more important in this scenario.  Find an agent familiar with the area and get them to help you make a determination as to the upcoming supply and demand dynamics in that market.

Condition of Home

Since we buy homes in need of repairs all the time, we can walk through a house and determine the necessary repairs somewhat quickly.  Or can we?  

Well, some things to consider when buying a home that recently flooded are the following, and we didn't necessarily consider these things immediately when walking through the home because without ripping down walls, things look to be fine:

• Plan to spend money on mold testing.  Mold can build up quickly and just because it's not visible on the outside, it doesn't mean there isn't mold present behind the walls.  Water can get stuck behind drywall and absorb into insulation.  Plan to tear down the drywall up to the level that the water was at AND replace all the insulation behind that point.
• Mold remediation may be necessary if the appropriate actions were not taken immediately after the flood.  Remediation requires certified professional assistance and can be costly for minimal areas.
• Preventative measures - Depending on the scenario, does it make sense to use different materials when rebuilding?  Does it make sense to evaluate sump, drain tile, or even external grading issues to mitigate your risk of flooding on the future?  It might and it might not, but consider the additional cost and make the appropriate decision.

Any other thought?  Would love to hear some additional thoughts that might help all of us when evaluating flooded homes in the future.  We all know this will continue to happen on a more frequent basis.