Sometimes it’s a puzzle why people don’t ask more questions, such as, “Has the river that’s down your road ever flooded your house, the house I’m thinking of buying?”
The maxim “buyer beware” is wise advice no matter where a house is situated, but it’s good to have rules in place to cover homebuyers’ backs for the things they overlook or wrongly assume.
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As of July 1, prospective real estate buyers in North Carolina must now be provided the required North Carolina Real Estate Commission residential disclosure form by the seller that for the first time includes questions related to a property’s flood risk.
The change in the form was requested in a petition for rulemaking filed by the Southern Environmental Law Center in December 2022 on behalf of the Natural Resources Defense Council, or NRDC, the North Carolina Justice Center, MDC Inc., the North Carolina Disaster Recovery and Resiliency School, Robeson County Church and Community Center, and NC Field.
“Most of those are small, local nonprofits that respond to disasters,” Brooks Rainey Pearson, senior attorney with the law center, told Coastal Review in an interview, referring to petitioners. “So we really wanted to give a voice to the people on the ground who deal with the fallout from flooding.”
Pearson said that the Real Estate Commission had quickly granted the petition at the time and agreed to add the questions proposed by petitioners. It was then delayed by mutual agreement, she said, to adjust the law to allow the commission to merely make changes in the form. That would avoid having to go through a lengthy rulemaking process.
“It was a longer journey than it should have been, but not because of any pushback,” she said. “I think everyone understands that homebuyers deserve to know if the property has flooded before.”
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Questions about flooding that have been added to the disclosure statement include the following:
- Is the property located in a federal or other designated flood hazard zone?
- Has the property experienced damage due to flooding, water seepage or pooled water attributable to a natural event such as heavy rainfall, coastal storm surge, tidal inundation, or river overflow?
- Is there a current flood insurance policy covering the property?
- Is there a flood or Federal Emergency Management Agency elevation certificate for the property?
- Has (the property owner) ever filed a claim for flood damage to the property with any insurance provider, including the National Flood Insurance Program?
The form also notes that the requirement to obtain flood insurance passes down to all future owners for those properties that have received disaster assistance.
Joel Scata, senior attorney with the NRDC, a national environmental nonprofit organization that is one of the petitioners, said that in the past, the only flood information that had to be disclosed to homebuyers in North Carolina was whether the property was in a floodplain.
“Now with the changes, a buyer is going to have access to much more detailed information,” he told Coastal Review.
According to state law, residential property owners are required to complete the disclosure statement and provide it to a buyer before an offer is made to purchase the property. New construction or never-occupied properties are exempted. Every question must be answered with “Y,” “N,” “NR” or “NA” for “Yes,” “No,” “No Representation,” and “Not Applicable,” respectively.
Despite stern language in the form about requirements, there is enough gray area to give pause to anyone with insight into human failings.
“An owner is not required to disclose any of the material facts that have a NR option, even if they have knowledge of them,” the statement says. Also: “If an owner selects NR, it could mean that the owner (1) has knowledge of an issue and chooses not to disclose it; or (2) simply does not know.”
The form does warn that failure to disclose hidden defects “may” result in civil liability. It also assures that if an owner selects “No,” it means that the owner is not aware of any problem. But if “the owner knows there is a problem or that the owner’s answer is not correct, the owner may be liable for making an intentional misstatement.”
If an owner selects NA, it means the property does not contain that particular item or feature.
Scata said that he believes that whatever remedies are available for enforcement are strictly civil, and do not include criminal charges in the case of fraud or misrepresentation.
“A buyer could file a civil suit, claim that the seller intentionally misled the buyer, make a fraud claim,” he said. But damages and other penalties would depend on the impact of what wasn’t disclosed, he added.
A buyer should take any “NR” answer as a cue to ask the owner about what they don’t want to disclose, Scata said, adding “it’s a good indication that something is wrong with the property.”
That choice could not be removed from the form unless it was done through a change in the legislation, he said.
“The buyer always has the right to go back and explicitly ask the seller the question,” he said. And don’t just push the question with the buyer, he said, but also go talk to neighbors about the situation with flooding episodes in the neighborhood.
Also, real estate brokers by law have a duty to disclose what they know, or reasonably should know, regardless of the seller’s response. “So if a seller says something like ‘No, there’s never been (flooding) on the property,’” Scata said, “but the Realtor knows that’s not true, there’s a duty on them to disclose. And they can be liable if they are complicit in that fraud.”
In that instance of potential fraud by a broker, the buyer can file a complaint with the Real Estate Commission.
According to an NRDC press release, homes in North Carolina with prior flood losses would be expected to average an annual loss of $1,211, compared to $61 for the average home. In 2021, there were 13,237 homes purchased that were estimated to have been previously flooded. The expected annual flood damage totals for those homes were estimated at about $16 million.
With climate change causing more intense rain and stronger storms, flooding is only going to become more of an issue, Pearson said.
“Before when you only had to disclose if the house was in a floodplain, well, that’s no longer a good indicator of whether your house might flood,” she said. “The best indicator of whether your house might flood is whether it’s flooded before. And so, we think, just for the sake of transparency, people deserve to know that. But they also deserve to know that because — I believe it’s called behavioral economics — when people have more information, they’ll make different and better decisions.”
