“Substantial Damage” and “Substantial Improvement”: What Do They Mean, and How Can They Impact You?

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If you live in a flood zone and sustained damage to your home, the terms “substantial damage” and “substantial improvement” can be very important. Simply put, they come into play when the combined cost to repair the structure or make improvements meets or exceeds half the market value of that structure.

Cost to repair + cost of improvements  ≥  50%
Market value of structure.

When that threshold is met, regulations require that the structure be brought up to current flood zone standards.

Substantial damage:

  • Damage can be from any cause – flood, fire, earthquake, wind, rain, or other natural or human-induced hazard.
  • The 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.”


Substantial improvement:

  • Remodeling projects
  • Rehabilitation projects
  • Building additions
  • Repair and reconstruction projects that use higher grade materials than originally present (ex.: replacing linoleum with tile floors)

“If your community does not require permits for, say, reroofing, minor maintenance, or projects under a certain dollar amount, then such projects are not subject to the substantial improvement requirements. However, if you have a larger project that includes reroofing, etc., then it must include the entire cost of the project.”


There is an exemption to the substantial improvement calculation in that corrections to code violations to meet the minimum standard are not included in the cost of improvement or repair calculation. If, however, the quality of the code-required item is upgraded, then the extra cost is not exempt from the formula.


Enclosures are created by walls that surround areas below the base flood elevation (BFE). Such enclosures are often seen under homes built on pilings. There are two issues of concern. First, these walls may be damaged by flood waters. Second, owners are often tempted to convert these areas into living space. The National Flood Insurance Program (NFIP) allows three uses for these areas:

  • Building access – using flood-resistant materials and design
  • Vehicle parking
  • Storage – items that have low damage potential from flooding or can be easily moved to a safer location

The enclosure is to be constructed with flood-resistant materials since floodwaters are expected to enter. Materials such as drywall, insulation, paneling, and carpet are not covered, as they do not comply with the accepted use of these areas.

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