TW on SI Real Estate

TW on SI Real Estate Originally from West Virginia, I was born into a military (USN) family, and we moved every two or three years, so I ended up living in twelve States.

Focusing on the needs and wants of homeowners, tenants, and landlords in Brooklyn and on Staten Island--residential and commercial real estate, with the goal of exceeding expectations. After graduating from Cornell University’s Hotel School, I worked in the hospitality industry for several years before leaving that business to work “on Wall Street” in Houston and Palm Beach. After ten years “on Wa

ll Street”, I returned to the hospitality business with a goal of living and working internationally. Indeed, I was fortunate enough to spent 26 years overseas as an expat and lived and worked in eleven other countries. The definition of hospitality: The art of making strangers feel welcome. Well, my background and experience coupled with my attention-to-detail, my respect and enjoyment of different cultures and customs, and my persistence and follow-up have provided me with valuable skills that I use daily in real estate negotiations, educating home buyers and sellers, working with small businesses for commercial property needs, and effectively marketing our listings--both residential and commercial. I recognize and value the trust that clients place in me, and I strive every day to exceed their expectations. Outside of real estate, I am a Red Cross volunteer as a Disaster Assistance Team member and a member of the Westerleigh Improvement Society. After living in thirteen different States and in fifteen countries, I currently reside in the wonderful Westerleigh neighborhood on Staten Island with my German Shepherd, Tabu. I enjoy gardening, landscaping, cooking, photography, traveling (obviously), German Shepherds, reading, golf, biking, and smooth jazz.

06/14/2022

Staten Island Residential Real Estate
Market Trends Summary for May 2022

Having mortgage rates over 5%--the highest in 13 years, naturally affects home buying demand as fewer new home buyers can afford the mortgage payments with interest rates over 5%, and it naturally slows the demand for buying a residential property. In fact, nationally, home sales have declined for the third month in a row.

However, if you own a home already, the good news is that year-over-year price appreciation is accelerating and the value of your home has continued to increase.

And there is also good news If you are thinking of selling your home, the median sales price on Staten Island increased 4.9% to $640,000. Days on the market—how many days your property for sale is on the market before accepting an offer, is down an amazing 45.9% to a mere 58 days. Inventory was down almost 20% to just 3.1 months.

Now looking at the charts and some of the trends on Staten Island

NEW LISTINGS
on Staten Island were down to 617 properties but that was a small decrease from May last year.

PENDING SALES
Pending Sales fell over 16% to a mere 424 in May, which compared to 509 a year ago May.

DAYS ON MARKET UNTIL SALE
This is one to always be aware of. From 108 days in May 2021 down to a mere 58 days last month. That’s a drop of nearly 46%!

MEDIAN SALES PRICE
As noted earlier, the median sales price of a home on Staten Island increased almost 5% over 2021 and now is at $640,000. A year ago, the median sales price was $610,000

THE AVERAGE SALES PRICE
Has increased yet again last month by 5.2% to $685,040

PERCENT OF ORIGINAL LIST PRICE RECEIVED
This trend is always one to watch as this tells you how much the final contracted sales price varied from the list price. As of last month, the percentage of original list price received was 98.7% versus 95.2% a year ago.

INVENTORY OF HOMES FOR SALE
No doubt and not surprising at this point, but inventory of homes for sale fell yet again--a decrease of over 25% over a year ago to a mere 1,329 properties.

MONTHS SUPPLY OF INVENTORY
This is a headline number really….we are down to just 3.1 months’ supply of inventory here on Staten Island. That’s a drop of almost 20% from last year at this same time.

MARKET OVERVIEW
Our last chart is a market overview for Staten Island.

Thank you for joining me. More than happy to discuss these trends if you would like to chat.

Stay Well!

T.W.

06/08/2022

ALL CASH OFFER WHEN BUYING A HOME? WHY??

What’s the story behind an all cash offer when buying a property?

Well for starters, it does not mean that the buyer will bring a boat load of cash to the closing. In fact, closings on Staten Island and Brooklyn will use bank checks and/or wire transfers.

While it does mean that the seller of the property will be fully paid at the closing, the seller would get fully paid at the closing whether it was an all-cash purchase or if a mortgage was involved. Frankly, it doesn’t matter at the closing if it is or was an all cash deal.

So, why use an all-cash offer? Why would a home buyer use an all cash offer to purchase? And, why might a home seller be keen on an all-cash offer to purchase?

Best start at the beginning of a real estate search…

Let’s assume that you have decided to look for a home or another real estate property. Even before seriously searching for that property, you need to seek out a banker, mortgage banker, or mortgage broker, and apply for pre-approval for the loan you want. The mortgage lender will review your finances and issue a pre-approval letter that tells you, your real estate agent, and potential property sellers, how much the bank is willing to loan to you.

Yet you still will have to have cash for a down payment and for a good faith deposit should your offer to purchase be accepted. But now you know how much a mortgage lender is willing to loan you and you can now search for your property knowing what you can afford based on this information.

But please NOTE: Your mortgage lender has not seen the property or the home. Your lender is agreeing to lend you X$ but that is not a guarantee. For example, if your financial situation changes in the time it takes you to find a property you want to make an offer on and when the mortgage lender is ready to lend the money, they may not lend the money or as much money.

When you make an offer, you will also be asked to include with your offer to purchase:

-pre approval letter from a mortgage lender (recent, not dated)

-proof of funds--bank statement showing you have sufficient funds
for the down payment and the good faith deposit

-and your attorney’s contact information.

This offer to purchase, often referred to as “the binder” within the industry, usually includes some contingency clauses. Should any of these contingency clauses come into play, then the deal is either dead or has to be re-negotiated.

Contingency clauses might include:
-a house inspection
-termite inspection
-attorney review
-financing contingency

A financing contingency provides that if the buyer of the property cannot get financing, within a certain time frame, the buyer can cancel the deal and the seller will return any money the buyer has put down. So, this financing contingency protects the buyer but would obviously be bad news for the seller as the seller thought they had a deal only to learn the deal is no longer.

Well, if you are a seller looking at competing offers to purchase your property and one offer has a financing contingency and the other offer is all cash, meaning no need whatsoever for a financing contingency…

Right, which would you choose?

What makes an all-cash offer attractive is that there is no financing contingency, and in fact, an appraisal will not be necessary. Should the buyer walk away from the deal for any reason, they will lose the good faith deposit.

Another benefit of an all cash offer for both buyer and seller is that an appraisal is not going to be necessary. When you buy a property using a mortgage, the mortgage company will insist on an appraisal of that property by an appraiser of their choice. The reason being is that Mortgage lenders will not loan you money, even if they pre-approved the mortgage, above what the property appraises for. This is a rule to always bear in mind.

So, now you know why all cash offers to purchase maybe made and why a seller might prefer an all cash offer over another offer that requires financing.

Thank you for joining me. This is T.W. and T.W. on S.I.

Stay Well!

06/01/2022

CLIMATE RISK WILL AFFECT YOUR REAL ESTATE

I live in the Westerleigh neighborhood on Staten Island. Love Westerleigh--it is without question one of my favorite neighborhoods on Staten Island and not just because I live there. I say the same thing about the New Dorp neighborhood, and not just because that is where my office is. Both are lovely older neighborhoods on Staten Island, mature trees, not all houses look the same, they have character and charm, residents care about their neighborhood, and their more-or-less central location on the Island is great.

In fact, New Dorp is actually one of the oldest neighborhoods on all of Staten Island--established in 1671 as a replacement for Oude Dorp or Old Town, which was destroyed in the Peach War of 1655.

Westerleigh, while established in 1887, was built up in the 1920’s and 1930’s and streets were named to “honor” prohibition. Yes, in was a pro-prohibition neighborhood way back then. Times, thankfully have changed but it’s a great neighborhood.

However, I doubt very few on the Island, would think flood and think Westerleigh. Lower New Dorp--generally below Hylan Blvd., yes, flooding is certainly a concern, but Westerleigh?

Yet last October when we had that hurricane, parts of Westerleigh did indeed flood and some places quite seriously and destructively. Indeed the City has recently begun on a $6.9 million drainage upgrade for Westerleigh to address the flooding issues.

And, I want to thank the City’s Departments of Environmental Protection and the Design and Construction for this much appreciated project. I also want to mention the Westerleigh Improvement Society ( http://wisonline.org/ ), which is a group of homeowners in Westerleigh that meet regularly and coordinate their concerns with the relevant City departments and agencies. It’s an excellent indicator of a good neighborhood to have such a large group of homeowners committed to the neighborhood, improving it, and making it better.

Now, the reason for bringing all this up is to stress to you that weather and climate are going to be affecting real estate--more now than ever before. AND in ways you might not have imagined.

Honestly, you really need to take climate change into serious consideration if you are in any way involved in real estate. The bottom line is that climate matters and the climate changes to come are going to matter a great deal to you and to your real estate.

With that in mind, I want to introduce you to a relatively new service known as ClimateCheck. ClimateCheck will help us assess that risk for your real estate. I will have the ClimateCheck widget on my website shortly (www.TWonSI.com). In addition to their website, ClimateCheck reports are now included in the RPR reports agents can generate for their clients.

So, what is ClimateCheck?

ClimateCheck is a climate risk data provider that combines real estate, science, and technology experience. Its goal is to empower all commercial and residential stakeholders – buyers, owners, brokers, investors and lenders by exposing and quantifying the risks related to the climate crisis.
It is designed to help property owners make a more informed decision about how to manage, sell, and buy real estate.

ClimateCheck gives you a crystal-clear picture of climate risk in the United States. Your overall Climate Rating is the average of the risk ratings across all five hazards: heat, storm, fire, drought, and flood, and they then score from 1 to 100. A score of 1 means you are exposed to relatively low risk, whereas a score of 100 means extreme risk.

Their team of PhD scientists interpret dozens of internationally accepted global climate datasets to deliver the most accurate climate risk ratings available today. The data set they prepare presents current risk exposure and then gives you projections for up to 40 years in the future! They define the future as year 2050, which is a period within the lifespan of today’s 30-year mortgage.

Here’s the bottom line: Climate change can have an impact on your cost of ownership – insurance and utility costs, needed upgrades, and repairs as a result of disasters due to climate change, and indeed, climate change can affect your quality of life.

So, this is information worth seriously considering when you think of your real estate.

Hope this has been helpful. This is T.W. and T.W. on S.I.

Stay Well!

05/20/2022

THE NYC MANSION TAX
A Nasty Closing Expense Since 1989

While we show you some of DiTommaso’s million dollar plus residential listings…Let me explain the NYC mansion tax and let’s start with the beginning of this tax.

The NYC mansion tax is on residential properties bought for more than $1 million, and it was introduced by Governor Mario Cuomo in 1989 in an attempt to improve the NY State’s budget during a difficult financial period. The thinking at the time was that this tax would only be affecting a small group of high-earning wealthy New Yorkers. And indeed, in 1989, $1 million would have bought you a mansion in the City. Now, however, $1 million would not buy a lot more than a nice 2-bedroom apartment in much of Manhattan.

Nonetheless, that $1 million threshold for this tax has never been raised. However, in 2019, the State of NY converted the tax to a progressive system based price brackets of the property.

So, how does this rather nasty tax work?

Well, anyone that buys any piece of residential real estate in NYC--not NY State, but in NYC, is subject to the NYC Mansion Tax.

Please note: This tax does not apply to commercial properties, which are treated very differently.

The buyer of the property is the one paying this Mansion Tax and it is part of their closing expenses and a big chunk of closing costs at that.

This Mansion Tax, unlike other property taxes, is not deductible on your federal tax return. However, the mansion tax does increase your cost basis of your property and that can reduce capital gains taxes in the event you sell the property in the future.

Will this mansion tax affect purchases of NYC residential real estate for less than 1 million $$$? No. No mansion tax in that case.

At $1 million but less than $2 million: 1 %

At least $2 million but less than $3 million: 1.25 %

At least $3 million but less than $5 million: 1.5 %

And the progressive rates continue up $25 million or more at 3.9%

Now, for the purposes of the mansion tax, residential real property would include any premises that is or may be used as a personal residence, and this includes one, two, and three-family house, an individual condo unit, and a coop apartment unit.

Please NOTE: This is NOT the only real estate transfer tax, but it is one that is directed at residential real estate bought for more than 1 million $$$. There is also a NY State real property transfer tax, for which the seller is generally responsible.

Hope this has been helpful!

Thank you for joining me.

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05/16/2022

Staten Island Residential Real Estate
Market Trends Summary for April 2022

Before reviewing the numbers and trends for last month, the headline here is:

The 30-year fixed mortgage interest rates are now over 5%, which is the highest they have been in 13 years

For a new homeowner, this higher interest rate translates into higher mortgage payments they would have to pay and it would raise those monthly payments rather significantly.

Naturally, this effects home buying demand as fewer new home buyers can afford the mortgage payments with interest rates over 5%, and it naturally slows the demand for buying a residential property.

That’s the bad news!

However, if you own a home already, the good news is that year-over-year price appreciation is accelerating and the value of your home has been going up. Homeowners may not be aware of it, but they are seeing a very good price appreciation on the properties they own. A chart of that appreciation nationally will be included at the end of this report.

For the overall national residential real estate market:

This past April, the biggest headline would be, as noted, mortgage rates are the highest they have been in 13 years and are now over 5%.

This increased costs of buying a property has naturally reduced the number of home buyers as well as caused mortgage applications to decline.

Re-financing applications nationally are down a whopping 70% compared to this time last year.

Now looking at the charts and some of the trends on Staten Island

NEW LISTINGS
on Staten Island were up a huge 565% a year ago April to 705 but this past April a decline to only 604 new listings.
PENDING SALES
Not surprisingly given the increase in interest rates, Pending Sales fell over 20% from a year ago April--down to 426 properties.

DAYS ON MARKET UNTIL SALE
As I note each month, this is a trend to watch! From 110 days in April 2020 down to 102 days in April 2021 and then down to a rather amazing 71 days for this past month.

MEDIAN SALES PRICE
This chart is worth a look-see. If we go back to 2020 the median sales price on Staten Island was $570,00

Last year it rose to $595,000.

This past month, the median sales price was $669,000
A very healthy 12.5% over a year ago.

THE AVERAGE SALES PRICE
is reaching historic highs as the average sales price rose over 12% from April last year to April this year and now stands over $700k at $706,711

PERCENT OF ORIGINAL LIST PRICE RECEIVED
As I say each month, this trend is always one to watch as this tells you how much the final contracted sales price varied from the list price. As of last month, the percentage of original list price received is 97.6% versus 94.9% last year.

INVENTORY OF HOMES FOR SALE
No doubt and not surprising at this point, but inventory of homes for sale fell yet again--a huge decrease of over 31% in one year from 2021. Last month it stood at 1,226 homes. Naturally then, inventory--or more accurately, the lack of inventory remains a real serious concern.

MONTHS SUPPLY OF INVENTORY
This is a headline number really worth watching….we are down to just 2.8 months’ supply of inventory here on Staten Island. That’s a drop of over 32% from last year at this same time.

Let’s end this report with some new charts that highlight two things

First, there are a couple of charts showing the price appreciation for existing homeowners, which is 19% over the past year nationally!

Second, a comparison over the years between home prices appreciation vs. the consumer price index--inflation.

Thank you for joining me. More than happy to discuss these trends if you would like to chat.

Stay Well!

T.W.

05/15/2022

DEFINITION OF A LEGAL BEDROOM in NYC

New York City Building Codes were updated in 1968, 2008 and again in 2014. According to the 2008 New York City Building Code, which applies to most multi-family buildings constructed between 2008 and the present, a legal bedroom must generally meet these criteria:

• Have a minimum of 80 square feet and no dimension measuring less than 8 feet. If the apartment contains three or more bedrooms, half of the bedrooms may have a minimum dimension of 7 feet.

• Have a minimum ceiling height of 8 feet. If the bedroom is in a basement, it must have a ceiling height of at least 7 feet. If there’s a sloped ceiling over all or part of the room, there must be a clear ceiling height of at least 7 feet over at least two-thirds of the room.

• Have at least one window that opens to a street, yard, garden or court on the same lot. In some zoning districts, skylights may be substituted for windows.

• Have two means of egress; whether egress is via window or a door, it must be operable from the inside without the use of keys, tools or special skills.

• Cannot serve as a passage to another room.

Many brokers and leasing agents suggest that a bedroom must also include a closet if it’s to be considered “legal,” but the NYC building code does not include such a requirement.

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05/14/2022

DEFINITION OF A LEGAL BEDROOM in NYC

New York City Building Codes were updated in 1968, 2008 and again in 2014. According to the 2008 New York City Building Code, which applies to most multi-family buildings constructed between 2008 and the present, a legal bedroom must generally meet these criteria:

• Have a minimum of 80 square feet and no dimension measuring less than 8 feet. If the apartment contains three or more bedrooms, half of the bedrooms may have a minimum dimension of 7 feet.

• Have a minimum ceiling height of 8 feet. If the bedroom is in a basement, it must have a ceiling height of at least 7 feet. If there’s a sloped ceiling over all or part of the room, there must be a clear ceiling height of at least 7 feet over at least two-thirds of the room.

• Have at least one window that opens to a street, yard, garden or court on the same lot. In some zoning districts, skylights may be substituted for windows.

• Have two means of egress; whether egress is via window or a door, it must be operable from the inside without the use of keys, tools or special skills.

• Cannot serve as a passage to another room.

Many brokers and leasing agents suggest that a bedroom must also include a closet if it’s to be considered “legal,” but the NYC building code does not include such a requirement.

05/14/2022

PMI: PRIVATE MORTGAGE INSURANCE (PMI)

For the first time home buyer or property buyer…it’s important to know and understand PMI…

IF you were to put less than 20% down for a down payment to purchase a property, your mortgage lender is going to want--nay, will insist on, PMI.

So, What is PMI? and, Why the 20% figure?

PMI — private mortgage insurance — is a type of insurance policy that protects mortgage lenders in case borrowers default on their loans. Mortgage lenders believe that if they have at least 20% of the sales price of the property as down payment, even in the case of a default, they are not likely to lose money--the 20% will cover their exposure.

However, if you put down less than 20%, the lender is likely to lose money in the event of a foreclosure. So, mortgage lenders then require someone not putting down at least 20% of the price of the property, to buy PMI so that in case of default, they will get 20%.

That’s why mortgage lenders charge insurance on conventional loans with less than 20% down.

Mortgage insurance covers that extra loss margin for the lender. If you ever default on your loan, it’s the lender that will receive a mortgage insurance check to cover its losses. PMI covers your mortgage lender, it does not cover or reward you in any way and yet, you are the one paying for it.

While PMI isn’t cheap and it would indeed be an additional monthly expense along with your mortgage (and property insurance), it does give potential homeowners an opportunity to buy their first house with less than 20% down.

Without mortgage insurance, many people would have to wait years to save up for a bigger down payment before buying a house. Those are years they could have spent investing in their home and building equity — rather than paying rent to a landlord each month.

How much is mortgage insurance?
Mortgage insurance costs vary by loan program. But in general, mortgage insurance is about 0.5-1.5% of the loan amount per year.

So for a $500,000 loan, mortgage insurance would cost around $2,500-$7,500 annually — or $210-625 per month.

Usually the annual premium is paid monthly as part and parcel of your mortgage payment.

Cost of Mortgage Insurance by Loan Type
Each loan type has a different mortgage insurance rate. So even for the exact same loan size, mortgage insurance costs could be very different depending on whether you got a conventional mortgage, FHA, VA, or USDA mortgage.

Mortgage insurance is calculated as a percentage of the mortgage loan amount — not the home’s value or purchase price.

Since annual mortgage insurance is re-calculated each year--as you are paying down your mortgage with your monthly payments, your PMI cost will go down every year as you pay off the loan.

For FHA, VA, and USDA loans, the mortgage insurance rate is pre-set. It’s the same for every customer.

Conventional PMI mortgage insurance is calculated based on your down payment amount and credit score.

Hope this has been helpful! Thank you for joining me!

T.W.

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05/14/2022

What is a 1031 Exchange? Who benefits? Consider this…

In my last vlog, making the case for rental income properties in a diversified and inflation fighting investment portfolio…I noted there were tax benefits available for owners of rental investment properties and one of those benefits is certainly the 1031 Exchange.

But what is a 1031 Exchange?

First, it’s called a 1031 Exchange because that is the section number of the IRS code where this is provided for and it’s been in the tax code since 1921. A 1031 Exchange is used to defer--defer, not eliminate, taxes when you have an almost immediate purchase of what is known as a “ like-kind property” of investment properties.

Most investors find it useful for reducing capital gains and other taxes on their earnings--BECAUSE normally when you sell an investment property for more than you paid for it, you would have to pay a capital gains tax. But by using a 1031 Exchange, you get to defer paying those taxes IF you invest the proceeds into a new property, making it an “exchange” rather than a sale.

The 1031 Exchange allows you, as an investor, to postpone paying capital gains taxes on the sale of investment properties and investors can do a 1031 Exchange repeatedly, if so desired.

As an investor you can then leverage those funds that would have gone to the IRS--20 to 30% perhaps, to acquire more attractive properties.

Defining “like kind”…It has to be a real estate investment property being exchanged for another real estate investment property. No, this 1031 Exchange cannot be used for your personal residence. However, you can take an apartment building and exchange for a piece of vacant land or buy an office building or buy farm property. The deal is this: The property has to be bought and sold for investment or business purposes. Now currently the tax code allows for deferring taxes on personal property such as art or equipment, but that provision is likely to change under the Biden administration while keeping the code restricted to real estate.

In real estate, you can exchange property that is residential, commercial, industrial and even leased property if the lease is 30 years or more and includes ownership interest.

However, there are very strict rules in regards to using a 1031 Exchange.

RULES of 1031 Exchanges

1. Exchange must be of “like-kind” property
I covered like-kind already but know that you can do this in any State of the US--you are not restricted to NY State. Or perhaps you want to move your base from New York City to upstate or out of state…can do.

2. The tax basis (cost basis) of the original property carries over to the new property--it does not change. For example, an investor has a property worth
$789,000, which the cost basis of $500,000, and he/she exchanges it for a
property, also worth $789,000, the tax basis for the new property is the $500,000,
plus any new debt taken on and any cash paid out.

So, another benefit of a 1031 Exchange is that it resets the depreciation clock on the property. 27.5 years is now the standard depreciation time frame. You are able to buy a new property to take advantage of depreciation of that new property to offset your income from that property.

3. The new property has to come with the same or greater debt load for the investor. If it does not, the investor is liable for taxes for gains on the difference.

The IRS does not want the investor pocketing any change on gains realized, as the 1031 Exchange is there to defer taxes from one property by investing (or exchanging) those gains in another property.

This is important so let me explain further:

ANY cash a seller receives from proceeds of the sale is taxable and it’s called BOOT. If all the proceeds are not used in the 1031 Exchange OR for some reason that 1031 fails to make the precise timing of a 1031 Exchange as required by the IRS, the proceeds are now taxable. The BOOT if you will, is taxable.

However, IF you, the seller, roll the entire proceeds of that sale into a 1031 Exchange into a like-kind property with equal or greater debt load, then taxes are deferred.

4. You Must Use Qualified Intermediaries to conduct the Exchange
The IRS does not want the seller to at any time control the funds being used in the 1031 Exchange. So, the IRS requires the use of a qualified intermediary whose duties include:
a. Coordinate between the exchangers and the attorneys and/or agents.
b. place proceeds of the first sale with escrow, with instructions
c. handle all the associated paperwork
d. provide the transfer documents for the Exchange
e. submit 1099 to taxpayer and the IRS for proceeds paid

5. Timing is Everything!
Investors have 45 days from the day of closing on one property to identify and commit in writing to thew next property. Then investors have 180 days from the date of sale of the first property to close on the second property.

These dates cannot be extended. No wiggle room. And the 45 days and 180 days include weekends and public holidays.

Those time limit start the day the investor executes the sale and purchase agreement for the first property.

In addition, the investor does not want to be straddling tax years in the middle of all this.

There is no limit how many times you do a 1031 Exchange. Nor is there no limit to how frequently you do 1031 Exchanges--only the time limits of the 1031 Exchange itself.

LEGAL FEES
Lots of benefits for an investor but worth noting is that legal fees will be greater than a typical property sale and/or purchase.

You really MUST have a professional guide you through this process. As noted previously, this is not for the faint of heart. You want to be able to rely on professionals go get this done and done within the time limits…

Thank you for joining me.

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05/13/2022

FLOOD INSURANCE

Here we are on Staten Island and for those of us that live near the water, which obviously includes Staten Island but also includes parts of Brooklyn and Manhattan as well, it is important to know there are a number of flood zones to be aware of in these locations.

And, as property owners in these flood zones know, the National Flood Insurance Program (NFIP) is the primary source of flood insurance coverage for residential properties in the United States, and that, of course, includes NY City.

In fact, according to www.floodfactor.com here in Richmond County, which is all of Staten Island, 19% of all properties are at risk of flooding.

So, please note that FEMA (Federal Emergency Management Agency) is introducing the biggest change to the way the National Flood Insurance Program calculates flood insurance premiums since the program started back in 1968. This new system is known as Risk Rating 2.0

Risk Rating 2.0 will continue the overall policy of phasing out NFIP subsidies, which began with a reform Act in 2012 and continued with another act in 2014. Under the change, premiums for individual properties will be tied to their actual flood risk.

New premium rates went into effect on October 1, last year, but only for new National Flood Insurance Program policies.

New rates for existing Program policyholders take effect this month (April, 2022), with the annual increases capped at 18% by law until they reach the full rate, which is usually over a 10-year to 15-year period.

So, what’s changing besides the rates?

First, the FEMA Flood Zones are not changing nor are they going away.

The Flood Insurance Rate Maps flood zone designations and Base Flood Evaluation will remain the guiding factors for determining whether mandatory flood insurance is required.

If flood insurance is indeed required, either by law or by your lender, the new FEMA pricing method Risk Rating 2.0 will be used in determining the insurance rate.

Please NOTE: Lenders have the right to require flood insurance regardless of any federal mandates.

So, what’s Risk Rate 2.0 all about?

According to FEMA, flood zones will no longer be used in calculating a property’s flood insurance premium because with the new system, the premium will be calculated based on the specific features of an individual property, including
-structural variables such as the type of foundation,
-the height of the lowest floor of the structure relative to the base flood
elevation,
-replacement cost value of the structure,
-distance to water, and
-flood frequency

So, Risk Rating 2.0 incorporates a broader range of flood frequencies and sources than the current system and is intended to make it more fair.

The old methodology also applied nationwide averages for estimating damage costs without taking into account geography-specific considerations.

For anyone that has gotten flood insurance on a property before, you will be familiar with Elevation Certificates. These are now less important but will be still referenced if you wish to challenge a flood zone status to remove flood insurance requirements from the property.

Even IF you are NOT in a flood zone:

Please NOTE: Standard homeowners insurance policies do NOT cover flooding.
As a result, FEMA does recommend that property owners consider flood insurance even if you are outside the flood zone.

New York City is a participant in the NFIP (national flood insurance program) and as a result of that participation, you are eligible to purchase a flood insurance policy with the same coverage as someone in a high-risk area. This policy is referred to as “A Preferred Risk Policy”, which is a lower-cost flood insurance policy which will provide both building and contents coverage for properties. This applies to both homeowners and business owners.

The amount paid to the policyholder on a homeowner’s flood insurance policy will cover the replacement cost of your home or the actual cash value of damages up to the policy limit, according to FEMA. However, the amount paid on contents will cover only actual losses caused by the flood

Renters can also get flood insurance to cover contents of their home, apartment, or business at a rented location.

For those that want to know more, a new interactive map by the PEW Foundation is a good place to start.

https://www.pewtrusts.org/en/research-and-analysis/articles/2021/09/20/new-interactive-map-shows-impacts-of-federal-flood-insurance-rate-changes

And for those of you that want to be prepared for flood emergencies, I recommend the Red Cross website

https://www.redcross.org/get-help/how-to-prepare-for-emergencies/types-of-emergencies/flood.html

I hope this has been helpful.

This is T.W. and T.W. on SI.

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