THE 50 PERCENT RULE

Flood regulations often force property owners in low-lying and coastal areas to measure the costs of rebuilding—or walk away—after storm inundation

BY DICK HOGAN, NAPLES REALTOR® Q1 2023

In the wake of Hurricane Ian, a littleknown federal regulation has some of the area’s most financially vulnerable residents suddenly faced with losing their badly damaged older homes if they try to make repairs. Experts are warning that the issue may force some essential workers to leave the area just as they’re needed most in Collier County’s perennially tight workforce.

The problem regulation is called the Federal Emergency Management Agency’s (FEMA) “50 Percent Rule,” which prohibits repairs to a structure in a flood zone if the repairs cost more than 50 percent of the building’s value—unless the entire structure is brought into full compliance with current FEMA flood regulations.

Although this rule is federal, it is administered by local municipalities. As a result, each locality has its own procedures for implementing the rule. Property owners in the disaster area who sustained major damage received letters from county or city officials informing them that their property may have to meet the 50 Percent Rule guidelines and provide documentation to show how much they paid for repairs.

Impact on Moderately Priced Neighborhoods

Appraiser Ray Carroll of Carroll & Carroll is a certified floodplain manager. He is one of the few with the training to deal with the intricacies of the rule. Before Hurricane Ian, 50 Percent appraisals were 10 percent of his workload—after the storm, they consumed the bulk of his services. When the 50 Percent Rule is triggered, the cost to repair can be prohibitively expensive for some home owners, and the house is simply torn down.

Compliance usually means raising the entire structure to meet modern elevation codes or demolishing the existing structure to build a code-compliant house, some owners may find the repairs would cost more than the house’s replacement value, says Carroll. “Older, modest homes are the most diffcult to pass the 50 Percent Rule test because they represent less expensive construction,” he says.

Sometimes the owner can afford to walk away from a house that would cost more than it’s worth to bring up to code, but that’s not always the case. Carroll says the “hardest calls” he receives are from working-class and cost-burdened owners living paycheck-to-paycheck who have houses dating from the 1960s and older in low-lying areas. “If the house comes down, then the only thing that can replace it is new, code-compliant construction, which will cost much, much more and will change that to another kind of housing,” Carroll says. “ at family will probably not go back into that neighborhood in new construction.” the result: Modest-priced homes are replaced by newer ones that can be sold for more than the original.

A building’s value is determined by calculating what it would cost to reproduce it exactly as it originally was constructed. The problem has been compounded by higher construction costs, which went up 10 to 15 percent higher than they were on September 27, the day before the strong Category 4 storm arrived. Experts say this typically occurs after catastrophic natural disasters, but it makes repair costs substantially higher as a percentage of the building’s value, Carroll says. “For a $100,000 house, the effective rule isn’t a 50 Percent Rule, it’s a 40 or 30 Percent Rule.”

The rule requires the owner to determine what the repairs would have cost at the time of the damage, so Carroll uses Sept. 27 for his pricing benchmark. The applicant for a permit can use the adjusted tax assessment of the property but for a big project, “the appraisal almost always yields a higher building value,” says Carroll. (The tax assessment for condominiums is done by individual condo units.)

Other Alternatives?

Charles Whittington, a real estate attorney with Grant Fridkin Pearson, says there’s often no palatable solution for those who can’t avoid the 50 Percent Rule. He says, often, it means demolition and starting over. The other option is to stagger the work if the jurisdiction you’re in will allow that, Whittington says. “You would do just enough to make the house habitable and then you come back a year later and finish it. It’s not very palatable but it’s possible.” Before Hurricane Ian, the 50 Percent Rule usually came up when homeowners or house flippers were trying to make significant home improvements—known in the regulatory world as “substantial improvement.” he says. “I never in my wildest dreams thought it would come into play how it’s coming into play” amid the duress of a natural disaster.