The pain of remodeling in a flood zone in Sacramento

Imagine your house catches fire and sustains substantial damage, but then you cannot repair it because your property is located in a flood hazard area. Or picture wanting to do a kitchen remodel as well as replace the roof, but when trying to pull a permit, you are denied because the cost is considered to be too much of an improvement.

Three Options: There are portions of Sacramento in Natomas and North Sacramento that are dealing with these very issues. Because the levy needs updating, these homes are located in a Special Flood Hazard Zone (Zones A, AE, AR, AH or AO). This leaves property owners with three options:

  1. Improve a home up to 40% of the county assessed structural value of the house. Or obtain an appraisal and get up to 50% of the market value of the structure.
  2. Raise the house above the flood area so you can spend however much you’d like. This is impractical though since there are portions of Sacramento where one would have to raise the house more than a dozen feet off the ground.
  3. Remodel without permits (probably not a great option).

Can this house be remodeled? The total assessed value of the structure is $20,297 (it is located in a flood area).

Fixer house photos on Sacramento Appraisal Blog

Value of the Structure: It might seem like quite a bit to get to spend up to 40-50% of the value, but keep in mind this is ONLY the value of the existing structure – not the total resale value of your property that includes the land, house and all improvements. For example, if the total value of your home is $100,000, the structure is only a part of the value and may only be $50,000 or so depending on the situation. It’s also important to remember that the Assessor’s figures are sometimes really low. They might have the value of a home’s structure at only $40,000, for example, while the land is valued at $50,000 (NOTE: Postage stamp vacant lots do NOT go for that much in flood areas). This means based on the Assessor’s figures you can only spend $20,000 to improve your home. If you have repairs that exceed that amount, there is really not much you can do unless you plan to spend big money to raise your house (or do work without a permit). However, if an appraiser provides an appraisal (with a Cost Approach), the value of the structure might be higher, which could help your situation.

City of Sacramento Document: The following document is from the City of Sacramento. It might be helpful to dig in a bit deeper. If you have any questions or needs, let me know.

Sacramento FEMA Substantial Improvement Rule

Question: What ways do you think rules in flood hazard areas can impact a neighborhood?

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  1. says

    What a fascinating issue.

    Does the lot really have any value if the home cannot be made habitable? From a residual cost point of view, a property that cannot be inhabited or improved, would ultimately have to be demolished and is a liability, not an asset. Improved lots have sold in bulk in the moratorium area, betting on the ability to build in the future. Looking at public records….. the county has redone values to $20-24K – hmmm – good information?

    One could buy a fixer and improve to the spending limit every 12 months….that might work.

    If you purchase a home with unpermitted improvements that ultimately have exceeded the 50% limit, could FEMA come along and reject the permit, asking for the project to be demolished?

    Well, bottom line is these homeowners have to rethink a little. Replacement value fire insurance may be a wasted investment if it can’t be used.

    Did open up the can of worms a little more?

    • says

      It’s definitely fascinating, Jeff. Thanks for your thoughts. Your good at thinking about issues critically.

      I would say the lot does have some value. Someone would pay something for the lot and sit on it until there is a change in the market as well as a change in flood zone designation. Hopefully these areas can be rezoned because it really puts some owners in a really hard spot.

      As long as it’s doable, I think the 12-month plan sounds like a feasible solution (though what a pain). This of course wouldn’t work in the case of a fire or investor flip though where clearly more than than 50% of the value would need to be spent in a short period of time.

      I didn’t realize the SacBee actually posted an article on this very subject today. How ironic that I did too without knowing.

      I’d be curious to hear from any owners or investors how they feel about the issue and what they are doing about it.

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