CFM REVIEW COURSE UNIT 8: SUBSTANTIAL IMPROVEMENT AND SUBSTANTIAL DAMAGE

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1 CFM REVIEW COURSE UNIT 8: SUBSTANTIAL IMPROVEMENT AND SUBSTANTIAL DAMAGE

2 SUBSTANTIAL IMPROVEMENT & SUBSTANTIAL DAMAGE

3 SUBSTANTIAL IMPROVEMENTS/DAMAGE Substantial Improvement means any reconstruction, rehabilitation, remodeling, addition or other improvement to a structure whereby "Substantial Damage" means damage of any origin sustained by a structure whereby

4 COST INCLUDED Structural items and major building components Interior finish elements Utility and service equipment Market value of all labor and materials

5 EXAMPLE OF SUBSTANTIAL IMPROVEMENT CALCULATION Improvement cost = $60,000 House cost = $100,000 $60,000/$100,000 = 0.6 (60 percent) This is a substantial improvement

6 WHAT IS INCLUDED IN PROJECT COST? The cost of the project means all structural costs, including all materials Labor, including demolition built-in appliances overhead profit repairs made to damaged parts of the building worked on at the same time There are two exemptions to calculating the cost of an improvement or repair project: improvements to correct code violations historic buildings.

7 NOTABLE EXCEPTIONS TO PROJECT COST Plans and specifications Survey costs Permit fees Post-storm debris removal and clean up Outside improvements, including: Landscaping Sidewalks Fences Yard lights Swimming pools Screened pool enclosures Detached structures (including garages, sheds and gazebos) Landscape irrigation systems

8 COSTS You must figure the true cost of bringing the building back to its pre-improvement/pre-damage condition using qualified labor and materials obtained at market prices. (i.e. if the owner does some of the work themselves they cannot deduct that from the price to repair the damage)

9 SUBSTANTIAL DAMAGE KEY POINTS The damage can be from any cause flood, fire, earthquake, wind, rain, or other natural or human-induced hazard. The substantial damage rule applies to all buildings in a flood hazard area, regardless of whether the building was covered by flood insurance. The cost to repair the structure must be calculated for full repair to the building s before damage condition, even if the owner elects to do less. It must also include the cost of any improvements that the owner has opted to include during the repair project.

10 ACCEPTABLE SOURCES OF PROJECT COST AND BUILDING MARKET VALUE Project Cost Licensed general contractor, Professional construction estimator Community office Building Market Value Independent appraisal by a professional appraiser. Detailed estimates of the structure s actual cash value Property appraisals used for tax assessment purposes The value of buildings taken from NFIP claims data Estimates based on sound professional judgment made by the staff of the local building department or tax assessor s office.

11 MARKET VALUE Market value is the price a willing buyer and seller agree upon. The market value of a structure reflects its original quality, subsequent improvements, physical age of building components and current condition. Market value pertains only to the structure in question. It does not pertain to the land, landscaping or detached accessory structures on the property. Market value for property can be different than that of the building itself. Market value of developed property varies widely due to the desirability of its location.

12 EXAMPLE 1 MINOR REHABILITATION Pre-FIRM Building, Not a Substantial Improvement

13 EXAMPLE 2 SUBSTANTIAL REHABILITATION Pre-FIRM Building, Substantial Improvement

14 EXAMPLE 3 LATERAL ADDITION RESIDENTIAL Pre-FIRM Building, Substantial Improvement

15 EXAMPLE 4 LATERAL ADDITION RESIDENTIAL Pre-FIRM Building, Substantial Improvement

16 EXAMPLE 5 LATERAL ADDITION NON-RESIDENTIAL Pre-FIRM Building, Substantial Improvement

17 EXAMPLE 6 VERTICAL ADDITION - RESIDENTIAL Pre-FIRM Building, Substantial Improvement

18 EXAMPLE 7 VERTICAL ADDITION NON-RESIDENTIAL Pre-FIRM Building, Substantial Improvement

19 EXAMPLE 8 POST-FIRM BLDG. MINOR ADDITION Post-FIRM Building, Not a Substantial Improvement

20 EXAMPLE 9 POST-FIRM SUBSTANTIAL ADDITION Post-FIRM Building, Substantial Improvement, New (higher) BFE

21 EXAMPLE 10 RECONSTRUCTION OF DESTROYED BLDG. Pre-FIRM Building, Substantial Damage

22 EXEMPTIONS There are three exemptions to the Substantial Improvement/Damage requirements Exempt activities Historic buildings Projects required by code

23 EXEMPT ACTIVITIES Cost EXCLUDED (partial list) Clean-up Contents Design cost Outside improvements

24 HISTORIC STRUCTURES Three criteria AND are approved by the community, the building will not have to be elevated or floodproofed. The building must be a bona-fide historic structure. The project must maintain the historic status of the structure. All possible flood damage reduction measures must be taken.

25 PROJECT REQUIRED BY CODE Updates to bring a structure into compliance with current codes that were required before the damage occurred do not have to be counted toward the cost to repair. This exemption exists in order to avoid penalizing property owners who have no choice but to make improvements to their buildings or face condemnation or revocation of a business license.

26 INCREASED COST OF COMPLIANCE Available to holders of structural (i.e. not just contents coverage) flood insurance policies. Refers to cases where the local floodplain management ordinance requires elevation or retrofitting of a substantially damaged building. Under ICC, the flood insurance policy will pay up to $30,000 to help cover the additional cost of complying with the ordinance. This is available for any flood insurance claim (substantial damage or repetitive loss structures only) and, therefore, is not dependent on the community receiving a disaster declaration.

27 REVIEW OF BASIC RULES Any maintenance activity as part of project (reroofing) Regulations apply to both pre- and post- FIRM buildings. All new additions to a post-firm building have to be built at or above the BFE Substantial improvements to residential structures must be elevated to the new BFE (non-residential may be floodproofed). Total project cost (can not break into smaller projects) Note FEMA gives CRS credit for communities that keep track of home improvement applications in order to keep tabs on cumulative substantial damage improvement

28 SUBSTANTIAL DAMAGE SOFTWARE FEMA has developed a software program to help local officials make substantial damage determinations. The software is self-contained and does not require any software in addition to Windows. The FEMA P-784 CD includes the Substantial Damage Estimator (SDE) software, the SDE User s Manual and Workbook, a video titled SDE and Your Community, and the Substantial Improvement/Substantial Damage Desk Reference (FEMA P-758).