From HUD's web site, "Appraiser's Frequently Asked Questions":
8. Please explain the requirement for a wood destroying insect inspection.
A pest inspection is required for all structures except condominium units that are above ground-level.
The appraiser must note any infestation, any damage resulting from previous infestation,
repairs resulting from infestation, or repairs necessary due to infestation. If the area in which the
property is located is in a questionable probability area, that is, one that may or may not need a
termite cert, then the underwriter should contact the HOC for guidance. However, an appraiser
must still check for signs of infestation even in those areas designated as not prone to infestation.