Rising flood insurance costs and the aftermath of Sandy have created a two-tiered housing market on Long Island's South Shore.
Coastal homes at lower risk of flooding — because they are elevated, on high ground or right outside the flood zone — command a premium, while homes at higher risk are less in demand, brokers say.
The disparity is due to the greater cost of insurance for flood-prone homes, as well as the higher probability of flooding at lower elevations, brokers and other experts said.
In the West End section of Long Beach, hit hard by Sandy, so many homes are being elevated that the streets have taken on a saw-toothed look, with low-slung bungalows overshadowed by elevated neighbors.
"It's an ominous thing to have a neighbor who has a home that's just like yours but it's eight feet higher," said Jonathan Miller, chief executive of the Manhattan-based appraisal firm Miller Samuel. "It would make the house that hasn't been modified less appealing, because there's an inference of danger because you're in a flood zone."
Focus on monthly cost
Plus, if homeowners must pay more for flood insurance, they have less available each month to pay the mortgage, so their home-buying budget takes a hit.
"At the end of the day, it's always a numbers game of how much a homeowner pays per month, not always how much they pay for the house," said Lorraine Weber, an agent with Century 21 American Homes in Oceanside.
Higher costs and risks hurt values in storm-damaged areas. In the July-to-September period, home prices on the South Shore in Nassau County fell by 1.3 percent year-over-year, according to a report from Miller Samuel and the brokerage Douglas Elliman. In contrast, overall Long Island home prices rose 4.1 percent.
Long Island's housing market is still recovering from the downturn that accompanied the recession, said Richard Guardino, executive dean of the Wilbur F. Breslin Center for Real Estate Studies at Hofstra University. Anything that adds to monthly housing costs, he said, "will depress the price of the house."
Subsidies phasing out
Flood insurance costs have risen this year for many Long Island homeowners and home buyers as a result of a new federal law. The National Flood Insurance Program is $24 billion in debt. In an effort to restore the program to solvency, the Biggert-Waters Flood Insurance Reform Act of 2012 phases out subsidies that have kept premiums artificially low for many homeowners.
More than 31 percent of Long Islanders who have flood insurance — roughly 26,000 local homeowners — receive the subsidies that are being phased out. Starting last month, the subsidies expire when homes change hands.
Also, flood insurance subsidies are being phased out for owners of second homes and certain other property owners, starting this year.
A proposal that would delay the end of subsidies has bipartisan support, but its chances of becoming law are unclear.
For some homes, flood premiums have jumped from $700 per year to $2,000 or more, in addition to the rising cost of homeowners' insurance, said Richard Budde, president of the Budde Agency, an insurer in Amityville. "People are saying, 'Wait a minute, we've got to come up with all of that every single month before we even pay our mortgages?' " Budde said. "It's not helping, that's for darn sure."
In addition to facing higher flood premiums, many home buyers in flood plains must get paperwork known as elevation certificates, in which surveyors compare a home's elevation with expected flood levels. Insurers use the certificates to set flood insurance rates. It can cost $500 or more to obtain a certificate.
Tina Canaris, an associate broker with RE/MAX Hearthstone in Merrick, said she urges all sellers in flood plains to buy elevation certificates.
"You don't want to be in contract and find that the buyer cannot afford the home," Canaris said.
Her client Carol Scibelli is asking $1.15 million for her waterfront home in Merrick, which Scibelli said took on only an inch of water in the basement when Sandy hit. Scibelli is getting an elevation certificate, hoping it will reassure potential buyers. The first question buyers ask, she said, is about the storm: "How'd you do?"
Hauppauge resident Suzanne Lucas was shopping for a home in Amity Harbor and found a "perfect" specimen whose owner paid an annual flood premium of less than $1,000. However, she said, the owner refused to get an elevation certificate. Lucas paid $700 for one, and learned her annual premium would be $4,000.
"I ended up having to walk away," she said, and she is now considering homes farther inland.
Some buyers seem to expect a discount of about 15 percent on homes in flood-prone areas, said Jerry O'Neill, owner of Coldwell Banker Harbor Light in Amity Harbor. "People are doing a lot more homework as to the consequence of buying a particular property," he said.
Tim Monahan, a contractor in Suffolk County, hopes that trend will help him sell a newly elevated home in Oakdale.
Before Sandy struck on Oct. 29, 2012, Monahan had planned to buy a three-bedroom home on Canal Road, renovate it and resell it. He expected to pay $250,000 or more.
After Sandy swamped the home, he paid $200,000 for it. He has since rebuilt it and elevated it by five feet, so it is now three feet above the expected level of a 100-year flood. He has listed it for $520,000. If it were not elevated, he would have listed it for $400,000 to $450,000, he said.
Because the home's elevation reduces its risk, flood insurance costs about $600 a year, Monahan said. By contrast, he said he pays about $3,200 for flood insurance on his own home, which is located nearby and is not elevated.
The market is likely to post gains as more homes are rebuilt, Miller said: "You're going to see this trend of larger homes replacing smaller homes in affected areas."
In Long Beach's West End, a modest bungalow sold in September for $249,000, according to public records. The investor who bought the storm-damaged home is offering the property now for $699,000, which includes knocking down the bungalow and building a two-story home above a garage, elevated to qualify for low flood insurance rates, said Weber, who is handling the sale.
Farther east in Long Beach, Amy Cohen's home flooded and then caught fire the night Sandy hit; she, her adult daughter, her daughter's friends and her two dogs barely escaped with their lives, she said. She sold the property in April for $155,000. She had paid $425,000 for the house in 2009.
Cohen, now living in a town house in Babylon Village, said she could not have afforded to build a new home to Federal Emergency Management Agency standards. Factoring in the insurance payout, she said, she "broke even."
In the year since Sandy struck, the pace of sales in Long Beach has been frenetic, with homes selling for a low of $65,000 and a high of $1.375 million, said Joyce Coletti, an agent with Douglas Elliman in Long Beach. Buyers, she said, "always wanted to live here but couldn't afford it, so now they're buying damaged homes, fixing them and living there."
But, she cautioned, "if you buy an inexpensive bungalow or a ranch by the ocean and you do not raise it, you're going to have to pay a very high premium for flood insurance."