HOME APPRAISALS FOR FLOODED PROPERTIES IN HOUSTON
Houston is no stranger to the devastation that can be caused by flooding. With the Memorial Day floods of 2015 and the Tax Day floods of 2016 still fresh in many Houstonians memories, we are now faced with the aftermath of Hurricane Harvey. The massive storm dropped more than four feet of rain in a few days, with flooding affecting about 68,000 homes in Houston alone. It’s total damage is estimated to exceed 190 billion dollars making it one of the most costly natural disasters in history.
Nearly a year later and many homeowners are still dealing with the ramifications of the floods. Some homes are in the process of being repaired while others are being completely rebuilt. Insurance claims are still being sorted out, sifted through and considered for payment. And of course, some are not. Some home owners and businesses have cut their losses and moved on.
As so many people are trying to move on with their lives we face the realization that we are just a few months from the beginning of the 2018 hurricane season. Before we can even think about that, we have to think about this: What impact has flooding had on home values?
LIKELY EFFECT OF FLOODING ON PROPERTY VALUES
It’s old news by now, but Harris County property values will be based on post-Harvey appraisals. And as expected, these values are expected to go down. However, according to the Harris County Appraisal District (HCAD), a property owner can contest the value placed on the damaged home or business, but also advises that they include photos and documentation in support of the dispute. (See article “Harris County Property Values Will Be Based On Post Harvey Appraisals” by Brien Straw)
Regardless of the final value attached to the property, there is probably something else on your mind: What will be the impact on your taxes? This brings us to the Harvey Property Tax Reduction Program.
The Harvey Property Tax Reduction Program is designed to assist a property owner in gaining a property casualty loss tax reduction. The loss or losses you sustained due to the damage caused by Harvey can entitle you to some major tax savings. This deduction that can result anywhere from 10% to 30% of the property’s value before the damage took place.
If you do not report the flooding to the appraisal district, they will likely assume the property is not flooded, and will assess the value on those terms.
So please remember to report the damage, including anything to document it, such as pictures, etc
Okay. Now you have the task of determining your house value to see what, if any, deduction you may be able to take. How is this done?
DETERMINING HOUSE VALUE AFTER FLOOD
When determining the house value after a disaster, there are typically two values that will be looked at:
- Retrospective value
- Current value
The retrospective value is simply the value of your home or business prior to the damage done by the disaster – in this case, Harvey. Here are the two ways this value is determined:
- As defined by the appraisal district or
- As determined by an appraiser licensed or certified by the state of Texas.
Then, of course, the current value will be the post-Harvey value.
Along with these two numbers, appraisers are going to look at your contributory value. This is your total property value (before damages) minus your land value. Note: In Harris County, you can look up your address online at www.HCAD.org. Your property value will be shown in three parts:
- Land value
- Improvement value, or contributory value
- Total value
For example, if you have a total value of $400,000, and you subtract the land value of $150,000, the contributory or improvement value of your home prior to the damage would be $250,000. The contributory value will be dealt with again later.
Okay, you have determined your retrospective value, or pre-Harvey property value, as well as your post-Harvey value. You now are faced with a decision. What do you want to do with the home now? Do you want to sell the property? Do you want to repair it? We will look at both of these items, one at a time.
SELLING A HOUSE THAT HAS BEEN FLOODED
You may be thinking that this is a no-brainer. You could be saying to yourself, “What good is this home now? I probably won’t get much for it anyway. I think I’ll just cut my losses, start over and move on.”
Sounds easy, but is it really? At the outset, here is a bit of sound advice: Think it through. Be honest about your real motivations for selling the property. It will not be as simple as unloading a damaged house.
Let’s assume you are a husband with a wife and children, and it is your home that became damaged. What impact could such a decision have on your family? Have you even asked them?
Your wife could be leaving close friends. Maybe she has a good job or some other honorable personal ties to the area. Your children are thriving in a good school, with tons of friends and activities that they treasure. Now imagine selling the home and having to relocate them to a strange new school district in another strange area, another strange city, even another strange state. The emotional impact can be strong, and have detrimental effects. Real life is full of these experiences.
Have you really thought of the impact on you? Be honest with yourself. The financial considerations are natural, but where do things go from there? Is it worth selling the home? A family discussion could help you make a decision that is good for everyone that could be potentially affected, not just the decision-maker.
Of course, there are other things to factor in. Maybe your insurance company isn’t going to give you enough money to rebuild. It happens. Or suppose they do pay you enough for the repairs. Do you – and your family – have the time and energy to get through a restoration? They involve a lot of work. Inspections will be tougher to make sure the property will be, once again, safe and livable for you and your family.
Here is something else you might not have thought about. Has your house ever been flooded before? It would be understandable to decide to move after the house has been flooded even once before Harvey. But if your house has never been flooded before this disaster, then your property could still hold a good value. Every flood makes it worse for your home. If Harvey is the first, there is a good chance your home still has enough value to work with in rebuilding.
Maybe your home has some equity. Couple this with no prior floods, even after sustaining damage, this could work in your favor and be reason enough not to sell.
No matter what your motivation for selling, no matter what things you are considering, the decision is yours. Still, when weighing your decision, a good realtor is a key ally in guiding you to the right choice. We recommend you contact our preferred Realtors at Blue Tag Realty.
REPAIRING A HOUSE THAT HAS BEEN FLOODED
Maybe you decided not to sell, but rather to rebuild your home. With any rebuild, you got building permits. But here is another question. Do I need an appraisal when applying for a building permit in the Houston area?
If you live in a designated flood area, your home has substantial damage, the answer is yes. Now what is substantial damage? This means that if the cost of restoring your home to the pre-Harvey condition, or its “contributory value” (see “Determining House Value After Flood” above) is greater than or equal to 50% of the pre-Harvey value, it is substantially damaged.
What it also means is that the amount of money you will be able to secure a building permit will not exceed 50%. For example, if your contributory value (total value minus the land value) equals $300,000, then the maximum amount you can get a permit to rebuild the home for is $150,000.
IRS DEDUCTION FOR FLOOD LOSS
If your home sustains a property casualty loss as a result of Hurricane Harvey, then you could qualify for significant tax savings. The IRS website has a page entitled Tax Relief for Victims of Hurricane Harvey in Texas. As you get ready to file your taxes for 2017, this page is worth your examination. It confirms affected areas, including Harris county, as well as other tax-related items.
What if your home was used for business? You could suffer a loss of income as a result of Harvey. In this case, you need two (2) appraisals:
- For the before-Harvey value of your property
- The post-Harvey value
If you need an appraisal of your home, and you want it handled by professionals with experience in flood appraisals, please contact us today. Our appraisers have extensive experience with flood appraisals and the various uses for such reports.
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