Research Article Open Access

The Impact of a Letter of Map Amendment on Floodplain Property Value

James E. Larsen1
  • 1 Wright State University, United States

Abstract

Substantial empirical evidence indicates properties across the United States that are located within a Special Flood Hazard Area (SFHA) sell at a discount compared to similar properties otherwise located. This result is also true in our sample. Researchers have suggested the price discount equals a combination of the present value of the required flood insurance premiums and the value of uninsurable costs. To identify the portion of the discount applicable to each component, analysts have been required to estimate applicable insurance premiums and to assume a discount rate. The present paper presents a methodology that does not require these prerequisites, but still enables separation of the discount into the two components. in the united states, the federal emergency management agency sometimes issues a Letter of Map Amendment (LOMA), which exempts a property from the requirement that it be insured against flood damage as a prerequisite to the owner obtaining a federally-related mortgage loan. Therefore, any price difference between non-LOMA SFHA properties and similar properties outside the SFHA should continue to equal the sum of the two components and any significant price difference between SFHA properties with a LOMA and similar properties located outside the SFHA should equal the present value of the uninsurable costs only. Hedonic regression is used to test this proposal by comparing the selling prices of single-family house transactions for properties located within and outside the SFHA in Kettering, Ohio. In our sample, no significant uninsurable costs were detected.

American Journal of Economics and Business Administration
Volume 4 No. 3, 2012, 172-179

DOI: https://doi.org/10.3844/ajebasp.2012.172.179

Submitted On: 27 November 2012 Published On: 14 August 2012

How to Cite: Larsen, J. E. (2012). The Impact of a Letter of Map Amendment on Floodplain Property Value. American Journal of Economics and Business Administration, 4(3), 172-179. https://doi.org/10.3844/ajebasp.2012.172.179

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Keywords

  • FEMA
  • Floodplain
  • Letter of Map Amendment (LOMA)
  • Hedonic Regression Analysis
  • Single-Family House Value