Natural disasters are among the most disruptive complications that can impact a family. Many Northwest Arkansas residents remember the tornadoes that ripped through Benton and Madison counties in May 2024 that led to death and tremendous amounts of property damage.
The storms extended as far east as Baxter County near Mountain Home, and spawned at least six tornadoes that killed seven people and comprised one of the deadliest and most destructive natural disasters in recent Arkansas history.
Two of those May 2024 tornadoes are among the widest ever seen in the state. One of the six tornadoes, the one that touched down near Rogers, measured 1.7 miles wide, according to the National Weather Service. A second tornado near Decatur was estimated to be 1.8 miles wide.
Of course, Arkansas is no stranger to tornado rampages or other natural disasters, from flooding to wildfires that can cause major property damage. Even a house fire can devastate a family and what it has built.
Many questions arise for families who lose their homes in the aftermath of disaster:
• Should we rebuild?
• Should we buy somewhere else?
• What will insurance actually cover?
• How do we make a major financial decision while still dealing with the emotional toll of a disaster?
The financial challenge of how to budget and what to rebuild is complicated by other factors, such as the costs of labor and materials, which tend to be inflated in a storm’s aftermath due to strains on local resources.
Arkansas law is geared in favor of consumers when it comes to post-storm repairs and reconstruction. When the governor declares a post-disaster emergency, which happens regularly, it triggers a series of federal and state aid, but it also kicks in Arkansas’ price-gouging protections.
Act 376 of 1997, the Deceptive Trade Practices Act, prohibits businesses from charging more than 10% above the pre-disaster price of goods and services, such as food, water, fuel, medicine, housing and construction materials. The price gouging protection is active for 30 days following a declared emergency and can be extended for an additional 30 days. For home repairs and construction, Act 376’s provisions can last up to 180 days.
The Arkansas Attorney General is charged with enforcing the statute and can seek civil penalties of up to $10,000 and pursue potential criminal misdemeanor charges.
The time it takes to rebuild a home can also add to the emotional toll of a disaster. By some industry estimates, a home rebuild can take 18 to 36 months to complete, leaving homeowners and families in flux for years in some instances. Insurance gaps may also compound an already difficult situation. A standard homeowners insurance policy may leave you with major out-of-pocket gaps after a disaster.
An older home may be subject to new and more expensive code enforcements upon rebuilding. Insurance policies can also distinguish between actual cash value versus replacement cost value for your home. It is worth reviewing your insurance to see if you need to change your policy before disaster strikes.
Financial experts can be a steady guide to help with answers, planning and options in these circumstances. Russ Kuhn, senior resident director for Merrill Lynch in Northwest Arkansas, recently discussed with Northwest Arkansas Business Journal Editor-in-Chief Roby Brock the financial decisions families may face after severe weather or disaster strikes.
Brock: After a natural disaster damages or destroys your home, when should you start thinking about your long-term housing plans?
Kuhn: In the immediate aftermath of a natural disaster that forces you from your home, your focus is rightly on safety and securing temporary shelter. But within a few months, you will need to start thinking seriously about a long-term housing solution. While temporary housing can feel unsettling, take the time you need to decide. Rushing into a permanent decision can lead to regret. Understanding your options can help you make the right choice for your situation.
Brock: What factors should homeowners consider first?
Kuhn: Insurance coverage is often the starting point. The amount of insurance you have relative to the cost of rebuilding fundamentally shapes your options. If you are well-insured and can rebuild comfortably, that may be the natural choice. Also consider future risk and insurability. Some areas become difficult or more expensive to insure after major disasters. Look into whether you can get adequate coverage in your original location and what that might cost. You should also think about the time and emotional energy involved. Managing a custom home construction project requires significant decision-making. Some people find the process empowering and healing. Others find it overwhelming.
Brock: What are the primary options homeowners should weigh?
Kuhn: Rebuilding allows you to stay in a community you love and create a home designed exactly to your needs, including disaster-resilient upgrades. But many homeowners discover their insurance may not fully cover rebuilding costs. Custom home construction typically takes 12 to 24 months under normal circumstances and may take longer after a major disaster. Relocating can reduce future risk depending on the area or provide an opportunity to be closer to family, downsize or pursue a lifestyle change.
Homeowners should also consider tax implications, what to do with their damaged property, and the personal impact of establishing new relationships and support systems in an unfamiliar area. Buying an existing home nearby may make sense if time is important due to family, work or school schedules, or if you do not want to manage the complexity of rebuilding. However, housing inventory in affected and nearby areas can become extremely tight after a disaster, driving up prices and creating competition.
Brock: How can homeowners finance whichever option they choose?
Kuhn: For building a new home, residential lot loans can help finance the purchase of a lot for future construction. Construction-to-permanent financing provides a two-phase loan covering both construction and the subsequent long-term mortgage. For purchasing a new home, traditional mortgages and home equity from other properties through a home equity line of credit can both play a role, depending on your situation and timeline.
Brock: What advice would you give families making these decisions?
Kuhn: Beyond the financial aspects, do not hesitate to lean on family, friends, your community or mental health professionals. The emotional toll of losing your home is real, and taking care of yourself and your family is just as important as making sound financial decisions. Talk with your family about what matters most. And give yourself grace throughout the process.
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Source: talkbusiness.net
