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All You Need to Know About the FEMA 50% Rule

The FEMA 50% Rule is a new regulation, issued by the National Flood Insurance Program (NFIP). It requires any Substantial Improvements or repairs to Substantial Damage to be compliant with today’s new flood regulations. Depending on the structure, this could include installing more drainage, elevating the building, or even rebuilding it with new materials.

So, what does this mean for your remodel or repair? Let’s talk about FEMA’s new 50% rule, and how you can prepare for your construction job.

What Constitutes Substantial Improvement or Substantial Damage?

Substantial Improvement and Substantial Damage are two sides of the same coin. A Substantial Improvement is any remodel, addition, or other improvement that costs 50% or more of the structure’s unimproved market value. Substantial Damage is any damage that would cost more than 50% of the structure’s undamaged value to repair.

So, why would you need to know if your structure is substantially damaged or you’re making a substantial improvement? Because in this situation, the entire structure must be brought up to current NFIP requirements. In Florida, it will also need to be brought into alignment with the Florida Building Code.

In the event that the structure was entirely destroyed, the replacement won’t be subject to the 50% rule. However, it will be considered new construction, so you’ll still have to comply with NFIP and Florida State regulations.

Permitting will also depend on your municipal government. Individual cities often have their own flood-proofing standards, over and above the requirements of the state and federal governments. When planning your repairs or improvements, make sure to remember local codes!

What Does “Market Value” Mean?

Market value is the price a property would be worth if it were sold on the open market. This assumes a normal sale – both parties are fully aware of the property’s condition, and neither is acting due to compulsion or other non-market factors. For example, just because you would sell your house to your child for $1 doesn’t mean its fair market value is $1.

For FEMA and Florida State purposes, fair market value can be determined in two ways. First, it can be based on the value determined by the county for property tax purposes. Alternatively, it can be based on an independent appraisal by a Florida-licensed appraiser.

Are There Any Exceptions to the FEMA 50% Rule?

There are a few exceptions to the 50% rule. These include:

  • Projects to repair health and safety violations. If the property has been Substantially Damaged, this doesn’t apply.
  • Repairs or remodels to historic buildings, provided the work is approved by the Florida Division of Historic Resources.
  • Improvements to mitigate future flood damage. The total costs can exceed 50% of the market value, provided you don’t exceed the 50% threshold in any given calendar year.
  • Non-construction costs such as planning, surveying, and permitting.

Hire a Quality Appraiser

Whether you’re improving your property or making a repair, you’ll need to hire an appraiser. When deciding who to hire, contact Maxwell, Hendry & Simmons. We’ve been in business since 1983, so we’ve got the experience you need to get a fair valuation.

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