Hello, it's Billee Silva with the Southwest Florida Realty Show. As our community struggles to rebound from hurricane Ian, we’re hearing more and more about the 50% rule, but what exactly is the 50% rule? The 50% rule is nothing new, but a large majority of homeowners have limited or no previous knowledge of the FEMA rule, so in today’s podcast, I am going to do my best to try and explain it. The 50% rule is a federally mandated regulation of the National Flood Insurance Program which requires any structure located in flood zones beginning with A and V where the cost of proposed improvements or repairs equals or exceeds 50% of the value of the structure must be brought into full compliance with current flood damage prevention regulations. This may include elevating the structure, using flood-resistant materials, and proper flood venting, among others. These laws are required by the National Flood Insurance Program to protect lives and investments from future flood damages. Our community must enforce these laws in order for federally-backed flood insurance to be made available to residents and property owners.
The FEMA 50% Rule applies to homes and other structures where the lowest floor is below the 100-year flood elevation. In residential properties, only parking, building access, and limited, incidental storage is allowed below the flood level. If the lowest floor of the structure is already above the 100-year flood elevation, the building can be repaired and reconstructed without having to comply with the 50% percent rule. However, if the lowest floor is below the 100-year flood elevation, the building must be elevated to, or above, that level, and All building plans submitted MUST be prepared to show how the building/structure is to be elevated. If the structure is located in a V-zone or if the structure is to be floodproofed, these plans must be prepared and certified by a registered professional engineer or architect. You can find these certificates from the Building and Zoning Department.
Under the 50% FEMA Rule, if an improvement is substantially damaged or substantially improved, the key word here is substantially, it must be brought into compliance with the flood damage prevention regulations, including elevating the building to or above the 100-year flood elevation.
So, what is considered substantial Improvement and Substantial Damage? Each community is responsible for determining the definition of substantial damage and substantial improvement, but most local jurisdictions in Southwest Florida use the same basic definition. Substantial damage is the damage of any origin sustained by a structure whereby the cost of restoring the structure to its before damage condition would equal or exceed 50 percent of the market value or replacement cost of the structure before the damage occurred and Substantial Improvement is any reconstruction, rehabilitation, addition, or other improvements of a structure, the cost of which equals or exceeds 50 percent of the market value of the structure before the start of construction of the improvement.
If a project meets the definition of substantial improvement or substantial damage it is considered new construction and the entire building must be elevated to or above the Base Flood Elevation and otherwise made fully flood compliant.
The FEMA 50% Rule only looks at the market value of the structure and not the land value, in calculating the FEMA 50% Rule value. So, for easy math, let’s say that a buyer just paid $350,000 for the home, the land is worth $250,000, so that means the structure was worth only $100,000. Now the $50,000 budget for remodeling or repairing the home is 50% of the home’s value. So, in this example, if your remodeling or repair costs exceeded $50,000 you would need to bring the home up to current flood evaluation and state building code standards.
Most local jurisdictions use the property appraiser’s value for the structure and does not allow the property owner to obtain their own appraisal to determine the value of the structure or improvement.
It is important to note that certain costs typically do not count towards the FEMA 50% Rule value. These costs include such things as plans, specifications, surveys, building permits, driveways, pools, seawalls, and other items that are not considered a permanent part of the structure. Typically, donated materials and volunteer labor must be valued at fair market value in calculating the FEMA 50% Rule value.
You need to know if an improvement is “substantial because exceeding the Substantial Improvement threshold requires the entire structure to be brought into compliance with the current National Flood Insurance Program regulations, the Florida Building Code, and the city’s Land Development Code.
If the proposed project is not flood-compliant, the building plans must be prepared to show how the building is to meet compliance.
If your proposed project is too close to the 50% threshold to determine if the work is considered to be a substantial improvement, then you will be asked to obtain and submit to us a detailed and complete cost estimate for the addition, remodeling, reconstruction of the structure, prepared and signed by the contractor. The contractor must sign an affidavit indicating that the cost estimate submitted includes all damages or all improvements to your structure, not just structural ones. The signed contract document must be submitted. If you decide to do the work yourself, you must submit the cost estimate, and provide proper documentation, including sub-contractor bids, to document the cost estimate.
Now here is where it gets even more confusing. The 50% decreases if you've made repairs or upgrades to your home. In Lee County, they’d look at the work done over the last five years.
For example, for a home worth $100,000, with $50,000 in damage from Hurricane Ian, if you did no work on the home, you can rebuild without bringing the structure up to code. However, if you made $10,000 worth of improvements to the house three years ago, you could only afford $40,000 in damage.
For this example, FEMA would subtract that $10,000 from your allowable $50,000 in damage, meaning you must bring the home up to the current code to repair the $50,000 from the storm.
Thankfully, Lee County reduced the time frame from five years to one year. So, using that same example, the homeowner could now rebuild without bringing the house up to current building standards because those previous repairs fall outside the new timeframe.
Like I mentioned in the beginning of this podcast, this 50% rule is nothing new. It’s just I don’t think most realtors do a good job at explaining it to their buyers at the time of purchase. Taking catastrophes out of the equation, this rule would still apply to anyone who purchases a home in a flood zone that was built below the 100-year flood elevation and wants to do any remodels or additions. And this isn’t just a southwest Florida thing, this is a federally mandated regulation of the National Flood Insurance Program.
So, in closing, I would just like to remind everyone whenever you hire a contractor to do any work on your home, please make sure they are a properly licensed contractor. Getting a permit for permanent repairs will help prevent post-storm scams and price-gouging. Your County’s permitting process can help ensure that repairmen are licensed and performing repairs to code.
As always, thank you for tuning in today and make it a great day.
Thank you for listening to the Southwest Florida Realty Show with Billee Silva. To learn more about Billee Silva go to www.sw-floridarealtor.com. That’s www.sw-floridarealtor.com. Or call 239-247-2490.