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VOL. 126 | NO. 87 | Wednesday, May 4, 2011

SPECIAL COVERAGE: Mid-South Flooding

Flood Stymies Homeowners, Homebuilders

By Sarah Baker

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In the aftermath of last week’s storms and as the Mississippi River continues to rise, homeowners and builders alike are taking a closer look at their insurance policies.

On Monday, the U.S. Department of Homeland Security’s Federal Emergency Management Agency announced that federal disaster aid was made available to Tennessee to supplement the area struck by severe storms, tornadoes, straight-line winds and associated flooding during the period of April 25-28.

This aid, however, is capped at about $30,000, and average payments tend to be much less.

Standard homeowner insurance policies include coverage for tornadoes, with earthquake and flood coverage available at an additional cost. But it’s the latter that Memphians tend to disregard, said Mark Barnes, insurance sales producer for Crye-Leike Realtors Inc.

“I find that a majority of the people do buy earthquake, and a majority of the people – unless it’s required – do not buy the flood insurance,” he said. “Everybody’s scared of earthquakes; they’re scared of the wrong thing. They can’t see an earthquake coming, but they figure that they can get out of the way if they can see the water rising.”

Case in point is the recent Japan earthquake, where about 80 percent of the damage was from water, Barnes said.

But the difficulty in selling the flood insurance is that homeowners already are paying an extra premium for earthquake. And unless flood insurance is required – which it is for those homeowners who live in the 100-year flood plain – less than 5 percent choose to purchase it.

While about 96 percent of Americans do have homeowners insurance, a 2008 research by Marshall & Swift shows that 64 percent of U.S. homes are undervalued for insurance purposes.

That’s because more often than not, the public is misinformed, Barnes said.

Even if a house is not located in a government-declared flood zone, the owner can still be eligible for government-backed flood insurance sold directly through an insurance agent.

“If you have an address, you can get flood insurance,” Barnes said.

And he encourages his clients to do so. Especially since nearly 20 percent of flood insurance claims come from moderate-to-low risk areas, according to Federal Emergency Management Agency’s National Flood Insurance Program. Evidence of that can be found in last summer’s floods that affected areas in Millington and Tipton County.

Homebuilders are also struggling, with regard to both insurance and construction.

Doug Collins, owner of Sovereign Homes LLC, has been trying to have Memphis Light, Gas and Water Division run utilities to one of his houses for more than three weeks, a task contingent upon the ground being dry.

“You pretty much reach a point where you have to stop,” Collins said. “It affects the building process at pretty much all stages.”

The weather has also affected business for Steve Hodgkins, owner of TNCON, stripping him of productivity during spring – the busiest time for builders.

“I’ve just started the first home in some time and haven’t been able to get the dirt work done to get the house started,” he said. “I would say we’ve basically taken a month out of the building cycle for the year so far.”

Neither Collins nor Hodgkins has flood insurance on their homes. They said unless lenders require it, it’s not a priority.

With the pending overall damage still up in the air, one thing is for certain – the rain is slowing down all aspects of the real estate business.

“The showings on the houses that I have completed have gone to zero during all of this rain,” Collins said. “If people aren’t out looking, they’re not buying, and if they’re not buying, then that also elongates the cycle between starting a house, closing a house and starting another house.”

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