Fall Real Estate 2005

Publication Date: Wednesday, October 12, 2005

Trouble's coming . . . or not
When should one have earthquake or flood insurance?

by J. Robert Taylor, J.D.

Q: I was recently quoted on earthquake insurance and the cost seemed quite high. It was about 150 percent more than my fire/hazard insurance premium. Does it make sense to carry earthquake insurance?

A: It depends. In the Bay Area most of the value of property is in the land and not the improvements. If the improvement has relatively little value then spending a lot of money for insurance that has a high deductible may not be the best choice.

As a general rule it is best to spend the money on retrofitting your structure to improve its ability to withstand the seismic forces of an earthquake. In particular, homes built before 1950 often have inadequate bolting of the structure to the foundation. If the foundation is in good condition, upgrading the bolting is relatively inexpensive and provides tangible benefits during an earthquake.

Many homes built in the 1920s and 1930s have cripple walls above the foundation; these walls need to be strengthened with plywood to provide shear strength. The cost is far outweighed by the benefit for this type of upgrade.

Single-story wood frame houses generally fare the best during an earthquake, especially if they have been retrofitted or are of more current construction standards. These properties would be at lower risk for major damage should an earthquake occur. On the other hand older two-story homes or homes built out of masonry material are at higher risk in an earthquake. Two-story homes are more difficult and expensive to retrofit since creating interior shear walls to protect and secure the second story is complex after the house has been built. After doing some basic retrofitting of the foundation and cripple walls the owners of older two-story homes might want to consider purchasing earthquake insurance.

If you purchased your home with 90-100 percent financing or have very little equity then earthquake insurance would be foolish since the deductible might be greater than your total equity in the property.

Earthquake insurance does not increase your safety, retrofitting does, so invest in that first. There is a great deal of information available. I suggest you start with this site on the internet: http://www.abag.ca.gov/bayarea/eqmaps/fixit/fixit.html. If you would like a booklet on Earthquake Safety or preparedness for free, please write or e-mail me.


Q: How do I know if my home is in a flood zone? I live close to a creek and used to have flood insurance, but no longer carry flood insurance because I do not have a loan.

A: Flood zones are determined by FEMA. There are various designations for the risk of flood depending mostly on elevation. Simply being near a creek does not mean you are in a flood zone; likewise being farther from the creek is also no protection.

Water seeks the lowest elevation as we have seen clearly on television in New Orleans. Many cities including Palo Alto have information on the Web that will help you determine if your property is in a designated flood zone. A determination of whether your home is in a flood zone is generally done by reading maps published by FEMA. All conventional lenders require that you carry flood insurance if your property is in a 100-year flood area. This does not mean that you will have a flood every 100 years, but actually means that you have a 26 percent chance that your structure will suffer flood damage during the life of a 30-year mortgage.

Since FEMA flood determination maps measure approximate elevation, it is possible that your home is not in the flood zone even if it is according to the map. Those who don't want to pay flood insurance or want to add onto their home without raising their house above the flood plain can invest in their own elevation survey to determine if their home is actually in the 100-year flood zone.

If the elevation survey shows that your property should not be in the flood zone then you can make an application to have your property exempted from flood insurance and the other regulations that affect property in flood zones. FEMA regulations require that homes built in a 100-year flood zone be elevated above the flood plain and they cannot have basements or other living areas below that elevation.

In general, properties in a flood zone would be worth somewhat less due to their reduced development potential. FEMA and local building ordinances also regulate remodeling of homes in a flood zone. If the remodeling project is valued at greater than 50 percent of the existing structure, you will not be able to do the project without raising the entire living area above the flood plain. Talk to your local planning office prior to drawing plans and working with your architect so that you have a clear understanding of the rules.

J. Robert Taylor, J. D., a real estate attorney and broker for more than 20 years, has served as an expert witness and mediator and is on the judicial arbitration panel for Santa Clara County Superior Court. Send questions to Taylor c/o Palo Alto Weekly, P.O. Box 1610, Palo Alto, CA, or via e-mail at btaylor@taylorproperties.com.