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Improving a Pre-FIRM Home on Kauai

In my last blog I explained Pre-FIRM homes are homes built before Nov. 4, 1981. This date is when the county of Kauai joined the National Flood Insurance Program. Anything built after Nov. 4, 1981 is considered Post-FIRM. Pre-FIRM homes are “Grand fathered” and may not conform to present day code. These Pre-FIRM homes are allowed to stay non-conforming until the building is rebuilt/improved over 50% of its market value.

This is called Substantial Improvement– When improvement of the Pre-FIRM building exceeds 50% of market value of the home. The building and its improvements must be brought up to present day code. With a cumulative improvement of 10 years for Kauai.

When buying and selling Kauai real estate substantial improvement can go undetected to a prospective buyer if the home has changed owners in the past 10 years. EXAMPLE:

Mr. Buyer finds this beach front home in Anahola at 4775 Aliomanu Road for sale. A pre-firm home built in 1949, 3 bedroom 1 bath of 800 sq. ft.. Mr. Buyer has plans to fix up the home and add a bathroom. He is an older man that has dreams of re-tiring. He is aware that the home is in the AE Flood Zone. He decides to purchase the home with a conventional loan and will need flood insurance. At the time of the purchase (2015) the Kauai Country Real Property Tax office determined a market value of the structure to be $300,000. Mr. Buyer estimated the renovation costs to be $120,000 and figures this would be a 40% improvement to the property.


When he went goes to the county building to pull permits he is informed that the $120,000 renovation would be considered a substantial improvement and the home would have to be brought up to present day code. Now Mr. Buyer is confused. The county explains to him that 7 years ago in 2008 the previous owners made a 20% improvement to the home. Since Kauai has a 10 year cumulative improvement rule the improvements from 10 years ago will carry over. In 2008 the market value of the home was only $200,000.

This is what Mr. Buyers substantial improvement would look like:

$40,000(2008 20% improvement cost) + $120,000(Mr. B’s desired improvements) / $200,000 (market value at time of 1st improvement) = 80% improvement

If Mr. Buyer does decide to go on with the substantial improvements the home would have to be raised to the current Base Flood Elevation (BFE) identified by FEMA FIRM. A professional surveyor would be hired to determine the BFE and the home may have to be raised. Or if Mr. Buyer decides to renovate he could only make $60,000 worth of improvements to avoid updating to current code.

**This is a fictional story and does not reflect accurate history of the above property.** This story of Mr. Buyer could have many variations and could be a likely situation of a real home buyer. Substantial Improvement is definitely something to research before getting a mortgage for a home in the flood zone.

Each county has their own definition of improvement cost and market value. It would be best to consult with our local county flood plain manager for specifics. Our Kauai floodplain manager is Stanford Iwamoto (808) 241-4896.

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