Last year the Mid-Western Regional Council adopted its Mudgee Flood Study and last week 2965 residents, or about a quarter of the town's population, were sent letters informing them their property fell within an at-risk area.

The letters did not specify how at risk each property was.

The letters did however inform property owners they were required to notify buyers of the existing flood risk and also let them know that "flood related development controls would apply should they choose to redevelop in the future".

Mudgee-based The Property Shop's director Andrew Palmer, who is also on the board of the Real Estate Institute of NSW, said the letters were "the talk of the town".

According to Mr Palmer the key issue is the zoning documents issued by council didn't make a enough of a distinction between a property that's moderately impacted, for example a house on a hill with surface water run-off, and a house that's located on a river bank.

Mr Palmer said while real estate agents have been referring to the flood plan in contracts since last year, the issue only gained prominence due to the letters.

"It puts doubts in buyers' minds which can therefore impact the ultimate price someone is willing to pay," he said.

Mr Palmer said last year he was selling a property on Dewhurst Drive, South Mudgee, to an out-of-town investor who after reviewing the contract realised the property was classified as flood prone, and pulled out of further negotiations.

"It puts doubt in their mind," Mr Palmer said.

According to Mr Palmer it's not just buyers who are concerned; homeowners are also worried.

"It's created a fair bit of angst with sellers, particularly people that are in lower lying areas that have never been impacted by floods whatsoever," he said.

"The house could have been sitting there for 100 years without an issue."

He said there is also concern about the impact this will have on the cost of home insurance.

CoreLogic's director of research Tim Lawless said both the risk of flooding and higher insurance premium are likely to have a negative impact on buyer demand.

"For those homes located in flood affected regions that weren't individually impacted [by recent widespread flooding in NSW], there may be some positive flow-on effects as demand is bolstered," he said.

"Arguably, prospective home buyers would be more willing to purchase a home without a history of flooding and where the insurance premiums are likely to be lower."

Mudgee mayor Des Kennedy, who is also a recipient of the letter, stressed the importance of residents filling out a survey attached to the letter which he said will influence future flood policy.

According to a statement from Mid-Western Regional Council, the residents were contacted in writing: "so they can be equipped with as much information as possible, and to seek a high level of engagement and their feedback to inform future planning of development, emergency management and community awareness in relation to the upcoming Floodplain Risk Management Plan".