This week HUD is installing a validity period for appraisals that are used to establish listing prices for the federal agency’s REO properties.  The mortgagee letter released by the agency outlines when a second appraisal is allowed for purchasers of REO properties with FHA financing. 
Beginning April 1st, an appraisal used to determine listing prices on HUD REO properties will be valid for 120 days from the effective date on the appraisal.  This new requirement will replace the six month validity period of current HUD REO appraisals.  If a home is being purchased with an FHA insured loan, the HUD sales contract must close within 120 days or a new appraisal must be ordered.  
This change is a necessary response to the fairly common and inconsistent fluctuations in regional markets across the country.  In addition, when a buyer seeks FHA financing on an REO property, the list-price appraisal will remain in effect for obtaining the FHA-insured mortgage.  The FHA 203 (K) as-is appraisals are the exception to this new guideline. 
As defaults and foreclosures continue to rock the conventional real estate market, the same is true of FHA insured homes.  There has been a continued growth in the number of REO HUD properties across the nation and the need for new guidelines to move these properties has become a priority. 
Additional changes made by HUD recently to promote movement of REO properties were the lift of the 90-day rule which lifted the time period purchasers would have to wait to acquire FHA mortgage insurance and the guideline changes that would allow flippers to rehab and resell a home quickly.