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Soaring flood insurance rates fuel anxiety in real estate by Jeff Harrington

ST. PETERSBURG — Nearly 40 real estate agents packed the sweltering conference room in downtown St. Petersburg this week to hear flood insurance expert Pete Travis describe the new — and expensive — world coming Oct. 1.

He didn't pull any punches.

Many older homes in flood zones have long benefited from a big subsidy that kept flood insurance rates very low. Starting next month, those homeowners will typically see annual rates jump more than 20 percent, including a fee for a new reserve fund. A late payment could cost them their subsidy immediately.

If the owner sells the home, the buyer will lose the subsidy. That could, as in one scenario, raise a premium that had been $1,400 a year to $9,500.

Travis wasn't hopeful of a congressional reprieve in the next couple of weeks.

"Have I demoralized everyone here?" he asked.

Concern about rising flood insurance rates — triggered by the Biggert-Waters Act of 2012 — has been percolating for months. Now, just weeks before the law's main provisions take effect, real estate agents and communities from Apollo Beach to Treasure Island are galvanizing, worried about falling property values, busted real estate sales and a crippling effect on the broader economy.

"This is a major change," said Patty Latshaw of St. Petersburg-based Wright National Flood Insurance Co., the biggest writer of federal flood insurance in the country. "I'm just glad to see people are realizing what is going on and asking questions and becoming involved. Finally."

For Cristy and Fred Assidy, reality hit too late.

After 15 years in their "starter home" in St. Petersburg's Shore Acres, the couple was excited recently to close on a new home in Riviera Bay near Weedon Island.

Then came a shocker.

During this first year, their premium through the National Flood Insurance Program is a doable $1,700; next year it jumps to $17,000. For a house they bought for $205,000.

"This is going to devastate the real estate market here just when it's barely making a comeback," Cristy Assidy said. "People are going to leave the state in mass exodus."

Biggert-Waters was intended to help keep the National Flood Insurance Program afloat after suffering huge losses from Hurricane Katrina. Key to the makeover was getting rid of subsidized rates, in some cases gradually and in other cases — like the sale of a home — in one fell swoop.

Most flood policyholders nationwide will see only single-digit increases in rates next year. In fact, just 20 percent of all flood policies in the United States are subsidized. But in Florida, the impact will be much greater. With 40 percent of all flood policies nationwide, Florida has by far the most subsidized homes.

More than 50,000 of Pinellas County's 142,000 properties with flood policies have subsidized flood rates, more than any other county nationwide.

For someone staying in a subsidized home in a high-risk flood zone, rates will typically rise 16 or 17 percent Oct. 1. That doesn't include a 5 percent charge toward the new flood reserve fund.

The impact is more immediate, and devastating, for recent buyers of subsidized properties, like the Assidys, or those who let their subsidized policies lapse. After Oct. 1, their premiums will reflect the full "risk-based" rate, typically adding many thousands to their premiums.

Homeowners feel trapped, unable to sell and potentially facing double-digit annual rate increases if they stay. Some buyers of flood-subsidized properties feel duped, unaware that because their deal closed after July 6, 2012, they'll be forced to pay the full rate when they renew after Oct. 1.

St. Petersburg real estate agent Bonnie Davis, who organized this week's briefing with Travis, surmised the industry may have been late to mobilize because many thought Congress would intervene by now.

"The Realtors are starting to speak up now because they're starting to lose some deals. And this really is just the tip of the iceberg," said Christopher Heidrick, an insurance agent from Lee County, which like Pinellas is one of the hardest-hit counties.

Heidrick worked with a buyer from the U.S. Virgin Islands who planned to purchase a 9,000-square-foot home in Sanibel — until he found out the flood premium would jump from $2,440 to $16,092 when he renewed next year. "That blew up the deal," he said

Pinellas County Property Appraiser Pam Dubov thinks it's premature to speculate on the impact on market values and the broader economy. Beachfront home prices are up about 9 percent from a year ago.

Fourth-quarter results, Dubov said, could be radically different based on a rising number of anecdotes of pending sales gone bad because of the flood premium disclosure.

During a recent, packed community meeting in Treasure Island, a speaker asked how many Realtors were in the audience. More than 15 hands went up. How many had seen transactions fall through recently because of a spike in flood insurance premiums? All but two hands stayed up.

"I don't want to pretend this is going to go away and suggest this isn't going to affect the market because that's ridiculous," Dubov said. "There is no way this is not going to do that."

On the other hand, she said she doesn't want to alarm people that "every house prior to 1975 in a flood zone is worth nothing."

There are several measures being discussed in both the U.S. Senate and House of Representatives to stave off "unintended consequences" of Biggert-Waters. But so far the sole measure that has passed the House would delay only a small part of the law — and wouldn't stop the premium hikes from hitting new buyers of subsidized properties.

On Monday, the Independent Community Bankers of America echoed calls for a freeze on any increases until FEMA can complete a study on the impact on home affordability. Moving forward Oct. 1 threatens to price people out of their homes, destroy home values and disrupt the housing market's recovery, the bankers group maintained.

Property owners caught in the middle of the financial squeeze, like the Assidys, can only hope for the best.

The couple contacted FEMA to see if they can qualify for a grant to elevate their new home. But Cristy Assidy doubts that will work out in time.

"Apparently those dollars are kind of hard to get, and there's a limited time you can (apply)," she said. "I just hope the government just sees the light and realizes this will kill the real estate market here."

Jeff Harrington can be reached at or (727) 893-8242 begin_of_the_skype_highlighting (727) 893-8242 FREE end_of_the_skype_highlighting .

Fla., Pinellas to be hardest hit

Why are flood insurance rates rising?

To more accurately reflect the risk of flooding, the Biggert-Waters Flood Insurance Reform Act of 2012 calls for eliminating some artificially low rates and discounts.

Will everybody's rates go up sharply?

No. In fact, the biggest rate hikes focus on just 20 percent of flood policies in the country, those covering older properties in low-lying areas (called a Special Flood Hazard Area) for which owners have been paying cheaper, subsidized rates. The affected properties date to before Flood Insurance Rate Maps were adopted in the 1970s and 1980s.

What about properties within Tampa Bay?

Florida is the hardest-hit state and Pinellas County is tops with more than 50,000 subsidized flood policies that could face significant rate hikes. That translates to about 35 percent of all flood policies in the county.

Among other bay area counties: more than 14,000 Hillsborough policies (or 21 percent of all flood policies) are subsidized; in Pasco, it's more than 11,000 policies (36 percent); in Citrus, about 2,900 policies (41 percent); and in Hernando, about 1,000 (22 percent).

I've heard some property owners will face 25 percent annual increases for several years? Who does that affect?

• Owners of investment properties that have been subsidized with lower rates already started paying the higher rates on policy renewals after Jan. 1.

• Owners of businesses and nonresidential properties with subsidized rates will see the higher rates effective Oct. 1.

• A subsidized property that has experienced severe or repeated flooding will see the higher rates kick in Oct. 1.

What if I live in my home and currently benefit from subsidized rates on my flood policy?

If you continue to live in your home and don't sell, you most likely will be able to keep the lower, subsidized rates with the higher premiums phased in. The phase-in rate for a subsidized homeowner in an A or V flood zone is 16 or 17 percent annually until the rate is determined to be at full-risk.

However, you could face the big jump in rates if the property is sold, the policy lapses, you file severe or repeated flood losses, or a new policy is purchased.

Is that all?

No. Subsidized homeowners will also have to pay a new 5 percent charge into a reserve fund for future flooding losses.

I don't live near the beach. Do I have to worry?

Among the many misconceptions about Biggert-Waters is that it mainly affects beachfront property owners. To the contrary, many of the subsidized properties are inland in Pinellas County, county Property Appraiser Pam Dubov says.

How do I know if I get subsidized rates now?

Check with an insurance agent. But there are two main clues: Is the home in an "A" or "V" zone requiring flood insurance and is it at least a few decades old? It depends on when your community first created flood maps. Any flood-prone home built before 1975 predates flood maps in Tampa Bay and is likely subsidized. The earliest flood map in Pinellas County dates to May 1970 in St. Pete Beach.

I'm in an A or B hurricane evacuation zone. Does that mean I'm in a high-risk flood zone?

Not necessarily. Evacuation zones and flood zones are not the same. So don't use the zone listed on county property records as a basis for your flood zone. Best bet: Ask your insurance agent.

What if I have a subsidized policy in a flood hazard area and I sell my home or business property?

The buyer of a subsidized property will have to pay the full-risk rate for any policy issued or renewed on or after Oct. 1. That could more than triple the rates immediately. If you bought a subsidized property after the Biggert-Waters Flood Insurance Reform Act became law July 6, 2012, you could have to pay the full risk rate for a policy renewal starting in October.

I'm with a condominium association. How does this affect me?

Stay tuned. FEMA has not yet determined new rates for subsidized condos or multifamily properties.

I have flood coverage though I'm not required to do so. Am I in the clear?

Not entirely. Even nonsubsidized homes could see rates rise 6 to 9 percent.

Can property owners with unsubsidized policies face a large rate increase?

Yes. All property owners could face rate increases of up to 20 percent a year for five years if a community adopts a new flood insurance rate map as part of the program overhaul.

Can I do anything to fight higher rates?

Obtain an elevation certificate to show how high your home is compared with flood levels. There is an initial cost, but it may help reduce your rate. Review your flood zone maps to see your property's current flood risk and how close it is to a potential change in risk status if a new map is adopted.

And don't let your policy lapse, which could be a trigger for a big rate increase.

Has this changed sales contracts?

The Florida Board of Realtors recently changed its standard sales contract to let buyers know they may need to get a flood certification to obtain flood insurance. New contract language makes a buyer's offer contingent on obtaining flood coverage by a certain date at a price not to exceed a cap that is written into the contract. Moreover, the buyer and seller have to agree on when the contract can be terminated if the property is ineligible for flood insurance.

Have banks adapted as well?

All mortgage lenders have greater financial incentive to make sure that homes in flood zones carry the required coverage. Previously, the government imposed a fine of $350 per loan that did not have the required policy in place. That rose to $2,000 per loan under the new law. A total fine cap of $100,000 per lender was removed so now there is no cap.

Where can I find more details?

Go to Or contact your insurance agent.