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Extreme weather is increasingly raining down on real estate transactions, with insurers and lenders kicking up storms and killing deals if a new metric—a climate disaster score—doesn’t offer a sunny outlook.
As extreme weather events increase in frequency and ferocity nationwide, homebuyers and investors have had to recalibrate their pricing based on a climate risk score, The Wall Street Journal reports. This follows 27 $1 billion extreme weather events in 2024 in the U.S. that caused an estimated $182 billion in damage, according to NOAA data.
The Worse the Score, the More the Insurance Costs
A U.S. Treasury Department report shows that insurance is becoming more expensive and harder to obtain in areas with higher climate risk scores. The danger is clear to small landlords who do not have deep pockets to mitigate a high disaster score: High insurance is a cash flow killer.
This is a contentious issue, with many property owners disputing the scores assigned to their properties. They are not the only ones.
“Accurately estimating future flood risk at every property in a single city or watershed—let alone the entire United States—is fundamentally not possible, given current knowledge,” James Doss-Gollin, an assistant professor of engineering and a climate-risks specialist at Rice University in Houston, told the Journal.
For sellers, including flippers and investors looking to trade up or liquidate, a bad score can derail a deal by scaring away potential buyers and prompting discounts, as acknowledged in a Zillow analysis last year.
How Climate Scores Infiltrated Real Estate Deals
The increase in climate-related insurance losses presented an opportunity for climate analytics firms such as First Street, which has raised vast amounts of Wall Street money when it switched from its nonprofit status to a for-profit company, forming alliances with real estate websites such as Zillow, to offer climate stats to potential buyers and sellers.
Increased data has enabled in-depth climate modeling, offering insights into the likelihood of potential disasters, not just for neighborhoods, but also for individual parcels, including flood, wildfire, wind, heat, and air quality risks, on existing pages with interactive maps and links to First Street’s reports. Zillow described the company as “the standard for climate risk financial modeling” in a 2024 press release, saying the partnership would put the same risk data to use as banks, insurers, and large investors.
The Data Problem
But what if the data were flawed?
In late 2025, The New York Times reported that the data was turning off buyers from transacting on properties that had not experienced any disaster events in decades. Art Carter, CEO of the California Regional MLS, told the Times that “displaying the probability of a specific home flooding this year or within the next five years can have a significant impact on the perceived desirability of that property.” After a backlash from the real estate industry, Zillow quietly removed prominently displayed climate risk scores from more than 1 million listings in late 2025.
“When we saw entire neighborhoods with a 50% probability of the home flooding this year and a 99% probability of the home flooding in the next five years, especially in areas that haven’t flooded in the last 40 to 50 years, we grew very suspicious,” Carter told the Times.
Despite Zillow’s retreat, other listings sites such as Redfin and Homes.com still display climate risk scores.
“Our models are built on transparent, peer-reviewed science, and the full methodologies are publicly available for anyone to review on our website,” Matthew Eby, First Street’s chief executive, said in a statement to the Times. He added that the company’s models have been validated by major banks, federal agencies, insurers, and engineering firms.
Eby told TechCrunch: “When buyers lack access to clear climate-risk information, they make the biggest financial decision of their lives while flying blind.”
The Cash Flow Killer: Rising Insurance Costs
For investors, surging insurance costs have become a cash flow nightmare. Reuters analyzed the Treasury’s findings and discovered homeowners in the highest-risk areas paid $2,321—82% more than those in low-risk zones.
Even worse for investors: Those in high-risk areas were also more likely to be dropped by their insurers, according to the Treasury study of over 246 million insurance policies conducted between 2018 and 2022.
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Mandated Upgrades and Higher Deductibles
A January 2025 study by commercial real estate brokerage JLL revealed the scale of the challenge for larger multifamily properties. Insurers are demanding higher deductibles while imposing coverage conditions: flood barriers, impact-resistant windows, upgraded roofing, improved drainage, and fire-resistant building materials.
The upside? Owners who complete these upgrades gain access to lower premiums and more favorable terms.
How Investors Can Lower Their Climate Risk Score and Insurance Costs
Small landlords aren’t powerless against climate risk scores. There are concrete steps you can take to offset the risks, such as strategic site selection, targeted property upgrades, and smart insurance shopping. The key is proving to insurers that you’ve lowered risk and increased resilience.
As mentioned, data shows that location is still the biggest driver of premiums and nonrenewal risk. According to the U.S. Treasury, owners in the top 20% of climate-risk ZIP codes not only paid about 82% more in premiums than those in lower-risk areas, but faced the highest nonrenewal rates.
A report by global investment group GIC warned that the real estate market could lose up to $559 billion, affecting 28% of real estate asset value in the S&P Global REIT Index, from physical climate risks by 2050.
According to Climate X, here are specific steps smaller landlords can take to offset their climate-related insurance costs:
Buy in low-risk locations: Use First Street’s property-level climate assessments to avoid high-risk areas.
Target safer micro-locations: Even if you are in a generally flood-prone area, target properties on slightly higher ground, neighborhoods protected by upgraded/new levees and drainage systems, or fire-susceptible areas. Ensure the property is set back from woodland and constructed from fire-resistant materials.
Invest in resilience upgrades: In flood-risk areas, this includes elevating electrical panels, HVAC systems, and water heaters above projected flood levels. Add a sump pump and backflow preventers, and improve site grading and drainage to move water away from the property. For wildfire prevention, create defensible space, and use fire-resistant, resilient materials.
Create a paper trail of improvements for insurance companies: Keep detailed records of all mitigation work, including photos, invoices, permits, engineering reports, and code-compliance certificates, to provide clear proof to underwriters that risk has been reduced.
Use experienced insurance brokers: It’s worth paying an insurance broker for their expertise in placing coverage in climate-exposed markets.
Consider higher deductibles once resilience upgrades have been completed: Industry insurance guides say this move can lower annual premiums while mitigating the risk of high out-of-pocket expenses.
Bundle multiple properties with a single carrier: Bundling multiple properties under one insurance roof can increase negotiating power and save around 10%-25% in costs. Also consider special programs that reward “green” buildings and owners with a low claims history.
Final Thoughts
Extreme weather events and climate-related insurance costs have been touted as accelerants of the next real estate crash. Banks and insurers take this seriously, so there’s no getting around it if your business is property investing.
However, now more than ever, people need a place to live, so take steps to ensure your properties can withstand the insurance storm that will rear its head if you invest in a risk-prone area. Take a short-term financial haircut for a long-term gain.
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