Understanding The Expensive FEMA 50% Rule

If you are remodeling your home and live in a flood-prone area, be aware of the FEMA 50% rule for substantial improvements.
Matias Daroch  |  July 30, 2021  |    |  | | |  

If you are remodeling your home or live in a flood-prone area, then you might have heard of the Substantial Damages and Substantial Improvements, aka, the FEMA 50% rule. Even if you haven’t, it is good to have an idea of what the rule is, and how it might impact you as a homeowner. 

While most people worry about fire as the main threat to their home, residential structures are nearly three times as likely to experience flooding over a 30-year mortgage period if they are in a high-risk area for flooding. With a danger like that, it is a good idea to familiarize yourself with one of the most important rules you may encounter while remodeling or repairing your home. 

Flood Zones 

To properly understand the FEMA 50% Rule, it is important to first understand the areas it is applicable in—namely, officially designated Special Flood Hazard Areas. These are areas with a 1% annual chance of experiencing a flood. Within this zone, the base flood elevation (BFE) is used to describe the elevation at which that 1% chance would occur. All of this is calculated by the National Flood Insurance Program (NFIP), a voluntary federal program that provides communities with affordable flood insurance. 

The NFIP was founded with the principal goal of offering insurance assistance to those residents in participating communities, but also to help mitigate the risk of repeated flooding and the resulting damage. This is achieved through two conditions: the Substantial Improvement requirement and the Substantial Damages requirement. The application of these two concepts is where the FEMA 50% Rule comes into play. 

Understanding The Expensive FEMA 50% Rule
Miami Dade County Flood Zone Map

FEMA 50% Rule Explained

The basics of the FEMA 50% Rule is as follows: if any repairs or renovation to your home are estimated to cost more than 50% of the home’s value, then you are required to bring the building’s structure into compliance with flood damage prevention regulations

This is the meaning of Substantial Improvements and Substantial Damages. If the cost of repair or improvements is over 50% of the home’s value, then it is substantial. And, if this isn’t done, then the home can’t be ensured. 

It sounds simple enough, but there are some additional caveats that can complicate the process. For one, your home’s value needs to be assessed by local officials responsible for floodplain management. The minimum value can sometimes be below 50% as well, if local ordinances make that decision, and the value of land isn’t applied to the assessment. 

Another caveat is the Substantial Improvement Timeframe. Depending on the local authorities the total cost of improvements within a timeframe counts towards FEMA's 50% Rule. This timeframe varies greatly and can be from a year to almost a decade.

So, what happens if you need to bring your home into compliance with regulations? 

Well, there is the potential that your home will need to be elevated to above the BFE plus a freeboard depending on local authorities and codes. This applies to all residential structures that have their first floor below the BFE. Depending on local ordinances, parking, building access, and some variations of storage may be allowed below the flood line.

What does this mean? 

Elevating a structure a few inches may be plausible within a budget, but would probably reduce ceiling heights. However, the costs to elevate the interior floor anything above half a feet, may significantly increase the Hard Costs of your project. Most of the times, the cost is so significant that knocking down and building something new may give a return on investment.

Case Study: How to Calculate in Miami-Dade

While flooding is a danger across the US, it is coastal regions that are often the most associated. For this reason, Miami-Dade County serves as a great case study on homeownership and the FEMA 50% rule. Or, perhaps more accurately, how this area enforces or gets around the FEMA 50% rule. 

In the county, all new construction or substantial changes to existing structures must receive an Elevation Certificate from the county. If the house is lower than the required elevation, it is subject to the FEMA 50% rule. Homes built before 1995 may require a surveyor for a new Elevation Certificate, those built after 1995 will have their Elevation Certificate on record. 

The easiest way to know the subtatial improvement cost limit is to search the property at the Property Appraiser's website and look for the Building Value and multiply it by 50%. But be aware that other improvements may have been made during the SI timeframe period.

The steps to do a complete assement for your particular property, would look like this:

  • Check your Survey or Elevation Certificate for your Flood Zone and BFE. If your property is above the BFE plus freeboard, you don't need to worry to elevate your home furthermore, if it isn't follow the next step;
  • Search if the structure is part of an Historic Designation, if so, you might need to contact an expert to help you asses the situation;
  • Search the current building value of your structure according to your local county property appraiser, or order an private apraisal if you believe the amount should be higher;
  • Ask the local building department what the SI timeframe is;
  • Look for any permits and add the aggregated value over the SI timeframe;
  • Crunch up the numbers:
    • If the structure didn't have any improvements during the SI timeframe, calculate the 50% of the building value (from either the county's property appraisal or your private appraisal), or;
    • If any improvements where made during the SI timeframe, check the building value at that time and caclulate the 50%, then substract the cost of the previous improvements;
  • The remaining amount is what is left to improve without the need to raise to the BFE.
Fema 50% Rule to slowly rise the general level of a home that will be renovated.
LYNNE SLADKY / AP

More information on this and other county regulation can be found on the Miami-Dade County government website. Most counties in the US will have a website dedicated to flooding regulations, and a simple search using this term and your country name will typically bring up an official website with all the information you need to ensure your residential structure is up to code.

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Matias Daroch

I came to the US as a Chilean Architect and developer wanting to invest in residential projects. Soon, I found myself learning zoning and building codes in-depth, and understanding them better to maximize my return on investment. Not very long after, I began working and studying until I got my architectural license to practice in the US, and founded MIK Architecture to help other developers get more value for their projects.