In pre-pandemic times, fire risk made home transactions harder to close. But in the upside-down pandemic era, more homebuyers are paying record-breaking premiums to live in high fire risk zones — like those that stretch across California.
In 2020, the average high fire risk home in the U.S. sold for $56,700 or 18.5% more than a low fire risk home, according to a recent Redfin report. Already steep, this disparity has only grown since. In 2022, high fire risk homes sold for $120,000, or 27.6% more than low fire risk homes.
Not only do high-risk homes sell at higher prices, but they are also more susceptible to price cuts — and sell faster — than their lower-risk counterparts. Nationally, 21.9% of high fire risk home listings had price drops, compared to 18.8% for low fire risk homes, according to Redfin. While that shift is slight, the average high fire risk home sold in 16 days compared to a low fire risk home at 20 days. This is in direct contrast to pre-pandemic times when low fire risk homes usually sold faster.
The psychic scarring from California’s worsening fire seasons is still fresh — so why are homebuyers flocking to fire-prone neighborhoods? Multiple factors are at play here.
The fire risk premium
Historically, high fire risk homes have sold at higher prices than those with lower risk because they tend to be larger properties located in pricey coastal metros. Nationally, the average size of a high fire risk home is about 2,000 square feet, while the average low fire risk home falls 300 square feet shy of that.
Add to the mix pandemic buyers feverishly seeking deals on homes among already scarce housing inventory and the picture becomes clearer. California has long underbuilt housing, and construction starts are still 52,700 units short of meeting demand.
These remote workers and pandemic buyers tended to flock to suburban and rural areas. Research indicates that some buyers are not aware of the climate risks posed to their new digs, while others prioritized factors such as proximity to family, square footage and affordability.
The recent surge of remote work has allowed knowledge workers newfound freedom to move out of high-density metros and into California’s more rural, vegetation-adjacent areas. Taken together, these factors support California’s housing fire sale.
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Disclosure of Very High Fire Hazard Severity Zones
Smoke and mirrors: hidden costs
California homebuyers’ growing preference for more space leads them to fire-prone neighborhoods, a dangerous trend that stretches past personal safety.
Even if a homeowner manages to rebuild following a wildfire burn, the investment in their home is still at risk. Another analysis conducted by Redfin shows that sales volume in areas affected by wildfire bounces back at a much slower rate. For homes within the fire perimeters, home purchases declined an average of 38% in the 3 years following the blaze. Comparatively, homes immediately surrounding the fire perimeters declined by only 3%.
On the other hand, home prices still managed to rise in these areas despite this danger. This is in part due to the state’s chronic housing shortage, but also because the reconstructed homes are inherently more expensive.
Additionally, fire insurance is a typical hidden cost most homeowners don’t factor into their costs, and it’s only getting more expensive. However, California lawmakers are working toward making fire insurance more homeowner-friendly and incentivizing homeowners toward adopting better fire proofing.
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How quickly are California’s wildfire prone housing markets to bounce back after disaster?
For some pandemic buyers, situational urgency, lack of inventory, and soaring prices in housing naturally far outweighed climate risk in the immediate. And while many Californians are aware of local wildfire risks, the vast majority are still wholly unprepared.
Perhaps with greater inventory (and that’s a big perhaps), homebuyer preferences may shift back towards homes with less fire risk. For that group, agents might champion homes with modern sprinkler systems and those constructed of more fire-resistant materials.
As the first line of defense for homebuyers and sellers, real estate professionals need to familiarize themselves with fire safety precautions and disclosures. Click ahead for the lowdown (and download) of the RPI Forms necessary for disclosing fire risks to your clients.
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