Appraisal of Freeboard for a Single-family Residence in United States

Valuation of hazard-resistant construction, including the economic benefits of elevation for homes in Special Flood Hazard Areas (SFHA), is essential to increase consumer, builder, and government actions to incentivize flood mitigation measures. Previous studies have documented the economic benefits of elevated homes for flood mitigation using a benefit cost ratio (BCR) and the annual flood risk reduction (i.e., avoided average annual losses). Although these studies have shown economic benefits from elevating homes, consumer behavior and the market value of homes do not consistently reflect these benefits. This study evaluates the appraisal value of adding elevation within the standard 30-year mortgage period by considering a home’s net operating income (NOI), the difference between effective gross income (EGI) and operating expenses (OpEx). The proposed method determines a homeowner’s annual EGI by treating a home purchase as an income-producing property. The cost of elevation, flood insurance premium, homeowner’s insurance, property tax, and flood risk (i.e., average annual loss) are amortized over the 30-year mortgage period and considered as the main parameters of the annual OpEx for an owner-occupied home. To demonstrate the methodology, the EGI and OpEx are evaluated at elevation increments of +1, +2, +3, and +4 feet (e.g., freeboard).  A case study for a hypothetical single-family, one-story home in Jefferson Parish, Louisiana, reveals that cumulative appraised value increase for each foot of freeboard is $4,828, $10,186, $15,591, and $20,998 for a 30-year mortgage period. The results of this study demonstrate the economic benefit and cost effectiveness of elevation and document a critical gap in appraisal valuation.