It is not so much the quantity of water as the awareness of the risk that dictates what people are ready to pay for a property, says Michaël Bourdeau-Brien, professor in the Department of Finance, Insurance and Real Estate at Laval University as well as a member of the Intersectoriel Network of Quebec (RIISQ).
“A house that everyone knows how to be frequently flooded, an additional flood has little impact on its value, because the risk of flooding is already capitalized in the price,” he explains.
Conversely, when an property undergoes an unexpected flood, as what happened last week in Quebec and Lévis, it reveals that the risk is higher than we thought.
This risk reassessment normally leads to a drop in the value of the house, continues the academic.
Glue of hope for owners
The owners of a house having undergone one or more floods should not, however, panic about the loss of their investment … At least, not for the moment.
Michaël Bourdeau-Brien carried out a study, based on English data, in which he found that the risk of flooding has little impact on the price of houses when there are few on the market and that it is the sellers who have the big end of the stick.
“There is nothing that suggests that it would be different here,” said the professor at Laval University.
In a report published on July 18, the Professional Association of Real Estate Brokers of Quebec determined, from the statistics of residential sales of Centris, that the Quebec market still benefits sellers.
On the other hand, if the real estate market reverses and buyers have the beautiful game, the price of the flooded property can fall, says Bourdeau-Brien.
Say it or not?
In this case, where the market promotes the buyer, is the owner forced to reveal that his home has been flooded one or more times?
“A flood should appear in the seller’s declaration,” says the teacher in finance, insurance and real estate.
“But in the absence of a register which makes it possible to prove that there has been a flood in the past, I must admit that some owners do not even know that the property has already been flooded when they take possession of it,” he adds.
The latter argues that some people do not consider that two to three centimeters of water in the basement are a flood.
Increase in the cost of insurance or worse
Before approaching the effect of a flood on the price of the insurance policy, it is important to classify the type of flood, estimates Michaël Bourdeau-Brien.
There are, roughly speaking, two recurring categories: the river floods, caused by a watercourse that comes out of its bed and floods the territory, and the rainy floods, caused by intense rain fallen in a short time, which overloads the sewer network. This is what people in the large Quebec region have experienced recently.
“There is insurance for this last type of flood. It is up to the cleaning to pay for this additional premium or not to obtain protection against rainfall. It also covers backpacks, ”explains Mr. Bourdeau-Brien.
On the other hand, when the sewers are not enough in a sector, the insurer realizes it following the flood, and the whole district becomes at risk of seeing the price of insurance policies increase.
And the more climate change causes extreme weather episodes, the more the risk of rainfall floods increases and the less insurers are inclined to cover the damage, underlines the professor.
“Some insurers may even not to offer insurance for rainfall in certain sectors. An insurance deficit can affect the value of the property, ”he reveals.
No mortgage
There are also private insurance policies for river floods, says Michaël Bourdeau-Brien.
But they are practically only accessible in non-floodable areas, he specifies. For those who live in a flood zone, the government offers a last resort solution through the general financial aid program during a claim.
And when an owner finds himself overnight in a regulated flood zone – a sector affected by river, and non -rain – floods -, the possible buyer will know and adjust his offer accordingly. Often, a price well below what the seller would like.
The value of some houses has already started to decrease since Desjardins now refuses to finance the purchase of new properties located in the Grand Current zone, such as those on the edge of the Gouffre River in Baie-Saint-Paul.
“If only buyers capable of paying cash can acquire the house, the pool of potential buyers decreases drastically, which leads to a significant drop in the value of the property,” says Bourdeau-Brien.
The value of a house therefore depends on the confidence that buyers and lenders give it.