CURRENTS: Homework Before Buying Coastal Property

The new edition of Questions and Answers on: Purchasing Coastal Real Estate in North Carolina can help individuals navigate the complicated process of buying an existing building or an undeveloped lot on the coast.

“Coastal real estate differs significantly from inland property. The brochure highlights the location-specific hazards and regulations that a buyer or owner may find when considering coastal property,” notes Spencer Rogers, North Carolina Sea Grant coastal construction and erosion specialist.

With this information, buyers can better understand the risks from coastal hazards and avoid the surprise of unanticipated regulations, adds Rogers, pamphlet coauthor with Lisa Schiavinato and Walter Clark.

“Anyone considering the purchase of coastal property will find valuable information in the brochure to help guide them through the investigation of the property and the decision-making process,” says Miriam J. Baer, executive director of the N.C. Real Estate Commission.

The brochure was developed by North Carolina Sea Grant, N.C. Real Estate Commission and N.C. Division of Coastal Management.

Here are a few questions and answers on insurance and rebuilding after a storm. — E.L.

Q: Can I get insurance for damage resulting from erosion and flooding?

A: Probably, but not always. You may be able to purchase a flood insurance policy (separate from a standard homeowner’s policy). The National Flood Insurance Program (NFIP) makes flood insurance available nationwide to eligible properties. NFIP policies are written by private insurance companies for a processing fee and included federally mandated terms and costs. Discounts on annual premiums are available for buildings in some flood zones if constructed above the mininum floor elevation standards. To determine if NFIP insurance is available in your area, contact your insurance agent or see N.C. flood maps online at: http://www.ncfloodmaps.com/.

For elevation discounts and tips on rating existing buildings, see: http://www.ncfloodmaps.com/pubdocs/grandfathering_letter.pdf.

Determine the availability and cost of flood insurance in advance, and any limits on coverage. Private insurance coverage may be available for excess flood coverage or property not eligible for the NFIP.

Q: Is flood insurance mandatory for coastal property?

A: Sometimes. If the property is in an identified flood-prone area, federally insured lenders, including most banks, savings & loans and mortgage lenders, are required to have the building owner provide proof of flood insurance coverage for the life of the lien. Outside flood-prone areas, lenders still may require flood insurance to protect their lien and to declare the balance of the loan due and payable if coverage is not maintained. If a loan is not federally insured or there is no loan, no law requires flood insurance.

Flood-prone areas are identified on Flood Insurance Rate Maps. (See above for sources.) Even if not required, when building or buying near the ocean, flood insurance is always a good idea.

[For information about flood insurance and discounts, contact your local building official, insurance agent, the North Carolina Floodplain Mapping Program or the National Flood Insurance Program.]

Q: What are the limitations of flood insurance?

A: Federal flood insurance covers only building and contents damage — including damage from waves — caused by flooding. Technically, damage caused by chronic, long-term erosion is not directly covered unless it occurs during a storm event, which is almost always the case.

Federally backed flood insurance coverage does not cover damage to the land caused by flood, waves or erosion. Therefore, much of the purchase price for oceanfront property is not insured if the land erodes.

When a building is so damaged that it cannot be repaired or rebuilt, flood insurance may be inadequate to cover the cost of removing the structure and/or repaying the loan. Even if the building is undamaged, erosion that makes the lot “unbuildable” for new construction may cause the property value to significantly decline.

Q: Can I get insurance for wind damage to coastal property?

A: Probably. Because of the high risk in coastal areas, some private insurance companies exclude coverage for wind damage. For that reason, the N.C. Department of Insurance has established the Coastal Property Insurance Pool, formerly known as the “Beach Plan,” to provide wind coverage in areas where it is not otherwise available.

[For more information about the Beach Plan or homeowner’s policy coverage, contact your insurance agent or the North Carolina Department of Insurance.]

Q: Can I rebuild or repair my building if it is damaged by a coastal storm, fire or other hazard?

A: Maybe. If the damage is less than 50 percent of the building’s market value immediately prior to the damage, you may be able to repair it at its original location.

However, if the building is more than 50 percent damaged, repairs must meet the latest setback requirements, floodplain regulations and other building code requirements. Permits are required, as if it were new construction. In addition, repair or replacement on the lot would be prohibited if erosion has left insufficient space to meet the setback at that time.

Purchasers should determine if the lot and building presently meet the setback for new construction and eligible for a replacement building, keeping in mind the risk that erosion may make the lot unbuildable in the future.

The brochure can be downloaded from: www.ncseagrant.org/s/real-estate.

Copies are available from North Carolina Sea Grant offices in Raleigh, Manteo, Morehead City and Wilmington, as well as through the N.C. Real Estate Commission, www.ncrec.gov.

This article was published in the Summer 2011 issue of Coastwatch.

For contact information and reprint requests, visit ncseagrant.ncsu.edu/coastwatch/contact/.