How Flooding Can Affect Real Estate Value

The issue of climate change and its consequences is all over the media and has moved up the political agenda. Occurrence and severity of natural disasters increases daily. Flooding is one of the most common natural disasters in the world. 

The risk of flooding has always been present for buildings close to rivers or coasts but it has been growing in recent years. Major flood disasters in the world over the past decade have shown that flooding is a significant environmental hazard.

Flood poses a risk to infrastructure, local economy, housing, living conditions and not to forget human lives. The substantial cost of damaging natural and built environment, of cleaning up and the following renovations run into billions.

Global warming will very likely increase frequency and intensity of natural disasters such as flood, storm and heat waves. Storminess and rainfall in combination with expansion of human settlement in floodplains lead to a higher number of homes located at flood prone areas.

According to reasonable judgment flood risk seriously affects the value and amenity of your home or business property. Consideration should be given on a discount on the regular market value or other adjusting parameters within valuation.

As already mentioned climate change and as a direct consequence global warming will increase frequency and severity of floods. Rising global average air and ocean temperatures will support the rate of evaporation and the water holding capacity of the air, what results in an intensification of the water cycle.

There will be more energy to drive storms and hurricanes. There are a number of causes of flooding. Most commonly surface water flooding in times of heavy rain, river and coastal flooding will result in flooded property.

In addition, due to increase of global temperatures average sea level will rise. That will especially endanger regions situated just some centimeters above sea level.

Areas with large coastal settlements, might experience deadly disaster and consequently substantial loses. The location of real estate in a floodplain result in lower real estate values. Typically, flooding has only a temporary impact on property values and after three years prices should ordinarily return to their normal market level, if the problem doesn’t persist.

Regardless, flooding itself, location of a property in a floodplain area or the risk of recurrent flood events can affect the value of real estate substantially.

The impact of flooding on the market value of real estate or the event of a flood can cause extreme devastation to real estate. The reduction in the real estate value might range from negligible to severe.

In general the common conditions on the property market should not be influenced by a local and time limited flood event.

However, before talking about the negative effects that have to be considered in the valuation process the positive effect of water front location must be looked at closely.

On the flip side, the value of a property with a direct access to a lake or a river should be high. Positive and negative effects of water front location do overlap. In-depth analysis very often fails due to the small number of purchases, especially in exclusive residential areas where transfer of ownership is rare.

Sea level rise, increase of storm and heavy rain that result in flooding and a general higher flood risk, this are the consequences of climate change we have to expect in the future. Even it’s influence on the price of real estate can not be immediately ascertained, most of the findings of investigations see a negative influence on the market value of real estate by flooding.

The impact of flooding should therefore be considered in the real estate valuation process. No one knows when and in what extent the next flood event will occur or if precautions will be sufficient, however climate change means that natural disasters will be more common in the future and financial losses will increase.

Hence, valuation of endangered real estate has to consider the aspects of flooding and flood risk.