What are the Appraiser’s requirements when appraising a HUD Real Estate Owned (REO) property for a new FHA-insured mortgage?

A new appraisal must be prepared for all transactions involving the purchase of a HUD REO Property with a new FHA-insured Mortgage. The appraisal must be prepared in accordance with the requirements of the Valuation and Reporting Protocols Section of Handbook 4000.1 (II.D.4)
If the appraisal has no conditions, the Appraiser must render an as-is value opinion.
If the Appraiser must conclude the report under a hypothetical condition or extraordinary assumption, the Appraiser must report the issues and requirements as one of the following:
  • “subject to completion per plans and specifications on the basis of a hypothetical condition that the improvements have been completed";
  • “subject to the following repairs or alterations (list them) on the basis of a hypothetical condition that the repairs or alterations have been completed”; or
  • “subject to a required inspection based on the extraordinary assumption that the condition or deficiency does not require alteration or repair.” 
For policy information see Handbook 4000.1 II.D.4.c available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-03842