Hurricane FEMA Appraisal

What is the 50% FEMA Rule?

To summarize, the spending limitations for proposed improvements are 50% of the value of the structure. If the cost of improvements, or the cost to repair a building to its pre-damage condition, does not exceed 50% of the value of the building, the building can be repaired without needing to meet the current floodplain management standards. If the cost to repair the building exceeds the 50% threshold, the building must be brought up to the floodplain management standards.

How is the value for the 50% FEMA Rule established?

There are two (2) values that can be used to see if you meet The Rule. (1) The value provided by your municipality, or (2) an appraisal. Section 4.5.1 of the FEMA Desk Reference states: “Property appraisals that are prepared by a professional appraiser according to standard practices of the profession are the most accurate and reliable method for determining market value.” The Desk Reference clarifies that land, land improvements, and accessory buildings are not to be included in estimating the value.

Competent appraisers have concluded Actual Cash Value (ACV) is the best valuation method for the FEMA Rule. ACV is calculated as the cost to replicate the building, minus depreciation. ACV = Building Reproduction Cost – Physical Depreciation. ACV does not involve the use of comparable sales, and it does not include the value of the land.

A FEMA appraisal differs from a traditional appraisal in the following ways:

Narrative Form: 

FEMA appraisals are written in narrative format, unlike traditional appraisals which are on a form.

Actual Cash Value (ACV): 

FEMA appraisals report the ACV, which is the cost to replicate the pre-damage building minus depreciation for wear and tear. Traditional appraisals provide a different type of value.

Exclusion of Land: 

FEMA appraisals do not include the value of the land, land improvements, or accessory buildings. Traditional appraisals include these elements which are not relevant to the 50% FEMA Rule.

Purpose & Method: 

Traditional appraisals use recent sales to develop a value. FEMA appraisals, on the other hand, are specifically for determining compliance with the 50% FEMA Rule and require a FEMA-experienced appraiser.

What steps should be taken to comply with the 50% FEMA Rule?

1. Contact a licensed contractor(s) to estimate the cost for repairs or renovation.
2. Order a 50% FEMA appraisal from a licensed appraiser who specializes in 50% FEMA appraisals. It is important to have a FEMA-experienced appraiser perform this unique service, as FEMA does not accept traditional appraisals in most municipalities for this purpose.
3. Apply The Formula to the ACV to determine if the cost of repair or renovation is under the 50% threshold and factor this into your decisions.
4. Contact the building department for a permit. The local building department will use the 50% FEMA appraisal in the permitting process to determine if the work on the property will be a substantial improvement (require update to current flood requirements) or a repair of substantial damage (allow repair of existing building).