RALEIGH, NC — A new report provides insight into the hidden costs associated with purchasing a single-family home with a flood history in North Carolina – a state where past flood damages are not adequately disclosed to home buyers. The report – "Estimating Undisclosed Flood Risk in Real Estate Transactions” – was prepared by Milliman and commissioned by the Natural Resources Defense Council.
Key findings from the report are as follows:
The expected future annual flood losses for a home with prior flood damage is significantly higher than the average of all homes. The average home in North Carolina with prior flood damage has an expected average annual loss of $1,211, compared to $61 for the average home. Over the course of a 15-year mortgage, average expected damages to the previously flooded home equate to $18,164 (in today’s dollars); for a 30-year mortgage the damages equate to $36,328.
In North Carolina, 13,237 homes were purchased in 2021 that were estimated to have been previously flooded. The expected annual flood damages for these sold homes were estimated to be over $16 million.
Even with current conditions the expected losses increase dramatically over the duration of a mortgage. The losses can become even more extreme if climate change follows the Medium Climate Scenario or the High Climate Scenario (see report for the specifics of these scenarios). With these scenarios, climate change makes flooding more likely and more severe, through higher sea levels and changes in precipitation patterns, leading to even higher expected damages over the life of a mortgage for home buyers. For example, for a buyer of a previously flooded home with a 15-year mortgage in North Carolina, estimated damages rise from $18,164 under current climate conditions to $22,009 in the Medium Climate Scenario, and $30,512 in the High Climate Scenario. For a 30-year mortgage, estimated damages rise from $36,328 under current climate conditions to $44,018 in the Medium Climate Scenario, and $61,025 in the High Climate Scenario.
Without proper flood disclosure, a home buyer often does not know the risk and potential lifetime cost associated with the home. Milliman estimates that less than 4% of homeowners in the U.S. have any flood insurance coverage, potentially leaving unsuspecting buyers of previously flooded homes to be substantially more at risk of paying out of pocket for devastating, unexpected flood damages. Additionally, home buyers could be less likely to purchase flood insurance without the awareness that a home had previously flooded, and those that do purchase insurance may be subject to higher premiums than anticipated.
“North Carolina’s disclosure laws do not explicitly require that a seller tell a home buyer about past flood damages,” said Joel Scata, Water and Climate Attorney at NRDC (Natural Resources Defense Council). “The failure to require disclosure of past flood damages is already costing North Carolinians tens of thousands of dollars. Home buyers must have the right to know whether their dream home is a potential nightmare.”
“This study shows how a single- piece of information can substantially improve understanding of flood risk,” said David Evans, Principal and Consulting Actuary at Milliman, Inc. “For a prospective homebuyer, knowing if a home has flooded in the past can be one of the most intuitive and important risk factors to consider.”
"Climate change is making flood-prone areas even more vulnerable, as experienced by countless North Carolina communities. This report makes the costs of flooding clear and underscores the urgency of addressing flood risk and keeping new housing out of flood-prone areas," said Sierra Weaver, Coast & Wetlands Program Lead, Southern Environmental Law Center.
For more information, read Joel Scata’s blog about the report.
NRDC (Natural Resources Defense Council) is an international nonprofit environmental organization with more than 3 million members and online activists. Since 1970, our lawyers, scientists, and other environmental specialists have worked to protect the world's natural resources, public health, and the environment. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Bozeman, MT, and Beijing. Visit us at www.nrdc.org and follow us on Twitter @NRDC.