Today, °ù±ð²¹±ô³Ù´Ç°ù.³¦´Ç³¾Â® announced the addition of new home flood risk dataÌýto its home shopping experience. This has implications for how buyers approach the home buying process and will enable additional future research on how home buyers consider this factor in their home search.
How Buyers Shop for a Home – Economic Perspective
As we discussed when Big gaming rolled out its noise data feature, economic theory suggests that home buyers approach the process rationally1.Ìý They think about the benefits they’ll accrue from owning a home against the costs and alternatives and make the best decision given those options.Ìý When it comes to choosing one home over another, they’ll factor in the prices of each home and also its features—things like the number of bedrooms, bathrooms, but also harder-to-measure things like the view or the quality of the finishes and fixtures in the home. They’ll also try to think about pros and cons of the location. For example, a home that’s walking distance to a pharmacy or sandwich shop would be a plus for many, while a home far from the office might be a negative.Ìý
Your Walkable Dream is my Nosy Neighbor Nightmare – Preferences Vary
Different people prefer different things. Some people like more urban, walkable areas versus a home with more privacy.Ìý Preferences also often vary for the same individual over time. A young man or woman may prefer a downtown condo or apartment a quick walk from restaurants and bars. As they get older and have young children, the same person may instead want a little more privacy and space. And big-picture events can shift preferences, too. After months staying at home to prevent the spread of COVID, home shoppers are expressing more interest in suburban areas. Homes in the suburbs tend to offer more space, which has become increasingly desirable. The idea that they may be able to go into the office less often in the future likely also plays a role.
You’ve got to know – Information is Necessary
One key assumption underlying this theoretical model is that buyers have lots of information about properties to make good decisions. Real estate agents and information websites such as °ù±ð²¹±ô³Ù´Ç°ù.³¦´Ç³¾Â® have revolutionized the amount of information available to buyers so that a variety of factors can be known and considered. The number of bedrooms and bathrooms has always been relatively easy to come by, but now digital pictures, floorplans, and 3D virtual tours enable you to remotely get a feel for the finishes and layout of a room without having to visit. Neighborhood information, from school search to local grocery stores is available, and lets you get a feel for the neighborhood without strolling the block yourself. Ìý
New Flood Data Adds an Extra Dimension for Shoppers and for Research
Now, flood data, available on will enable buyers to consider the flood risk of a location when thinking about their home purchase.Ìý The flood data includes an estimate of a home’s FEMA flood zone as well as Flood FactorTM, comprehensive flood risk data displayed at the property level in the form of a score, ranging from 1 (minimal risk) to 10 (extreme risk) powered by the First Street Foundation. When available for a property, the experience will display the current risk of flooding for the home; whether that risk is increasing, decreasing, or constant; and the likelihood of that property experiencing a flood event over the next 30 years.Ìý
Previous research conducted by °ù±ð²¹±ô³Ù´Ç°ù.³¦´Ç³¾Â® and featured in the found evidence that homes outside of FEMA high-risk flood zones appreciated faster than homes inside those zones between 2012 and 2017, suggesting that buyers already attempt to adjust for this risk. But most buyers are not deterred just because a home has flood risk.Ìý In a consumer survey conducted this spring by Toluna research for °ù±ð²¹±ô³Ù´Ç°ù.³¦´Ç³¾Â®, a majority of buyers (55 percent) would still buy a home even if they knew it was in a flood zone, but roughly four in 10 buyers would expect some kind of discount on the home, presumably for the extra costs associated with flood risk. Younger shoppers were more open to buying a home with flood risk than those aged 55 and older.
The shopping experience on °ù±ð²¹±ô³Ù´Ç°ù.³¦´Ç³¾Â® will now make information about flood risk available to home buyers, homeowners, and real estate agents upfront. It will enable buyers to factor this risk into their evaluation of the tradeoffs of buying a particular home. The data will also help buyers and owners ensure they have adequate insurance coverage, since flood risks are not covered by homeowner’s insurance policies. By helping real estate agents make this risk an early part of the home search discussion, this data may incentivize owners to make improvements to their homes that help mitigate flood risk. This information may also reduce the likelihood that a home sale is derailed by unexpected information about flood risks late into the transaction.
In the future, this flood risk data will enable research to answer questions such as how a rating affects the price of a home or how long it takes to sell. We may also be able to evaluate whether the FEMA mapping or Flood FactorTM data have different impacts on market outcomes or consumer home shopping behavior.
1 Except when they don’t behave rationally, which behavioral economists study, but which is out of the scope of this article.Ìý See for example here:
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