Before buying a home, check this hidden financial risk

These assessments come from First Street, a former nonprofit that became a for-profit company this year, which uses computer models to quantify certain weather and climate risks for individual properties. First Street says it incorporates a building’s specific structural characteristics, as well as local infrastructure like roads and utilities.

“If you don’t take stock of the climate risk specifically, you could be in over your head,” Jeremy Porter, the head of climate implications research at First Street, told Business Insider.

For example, if the cost of flood or wildfire insurance spikes as it already has in places like Florida and California, “all of a sudden your household budget doesn’t make any sense for the property that you ended up buying,” he said.

The new Zillow tool also makes recommendations about insurance based on First Street’s analysis.

To dive even deeper, you can go to First Street’s website and get a free trial of its paid service, which shows ballpark estimates of how much a flood or fire could cost you, expected cooling costs, and projections of insurance prices. You can also toggle certain renovations to see how they impact those costs.

Remember those estimates aren’t a crystal ball

Climate-science experts outside the company have some reservations about First Street’s flood and wildfire estimates, though.

Michael Wara, a senior research scholar at the Stanford Woods Institute for the Environment, told Heatmap News to take First Street’s calculations with “a lot of grains of salt.”

Heatmap reported that First Street probably underestimates wildfire risk in wildfire-prone areas and that flood risk is very difficult to accurately model. You can try to cross-check flood risk with other sources like seeing if the town or city has flood maps available.

“Everything that we’re offering are probabilistic risk estimates,” Porter said.

“I think that just in general, the models give you a pretty good indication of which properties are riskier than other properties,” he added.

Then check local building codes…

Once you know the climate risks, you can assess how well a property is built to withstand them.

A good indicator of that is the local building code and whether the house is built to its standards. The Federal Alliance for Safe Homes has a tool for checking that at inspecttoprotect.org.

Not only does FLASH rate the local building code, but the tool also shows information about the area’s past natural disasters and suggests upgrades.

… and consider renovations

In the FLASH tool, you can select the year a house was built to see what renovations would strengthen it against different natural disasters. Each upgrade has a cost and impact rating.

Taking matters into your own hands could make a big difference because, according to the Federal Emergency Management Agency, only about one-third of US jurisdictions have adopted up-to-date codes to match their natural hazards.

Even then, building codes are often designed to protect the lives of people inside the house, but not necessarily to prevent expensive property damage.

“You got to at least have a good building code, but that’s a starting point. It’s not your gold standard, it’s your minimum,” Leslie Chapman-Henderson, FLASH’s president and CEO, told BI.

In some cases, renovations and upgrades can even help lower your insurance costs.