How do I overcome lowball bank appraisals to refinance my home? Can I contest an appraisal? Other options?

I purchased my 1950’s California home in 2005 for $ 450k and subsequently sunk $ 175k into substantial improvements, making the total investment about $ 625k.

I currently owe $ 340k on this home and have no other debt.

I was attempting to refinance at a new, low rate, and get some cash out for my business. Yesterday I received a crushing appraisal from one of the bank’s selected appraisers. The guy came back with $ 312k–less than 50% of my investment.

I personally took this appraiser through my home, pointing out all the improvements that had been made and where all the money was spent. I even gave him a breakdown of everything on paper that he took with him. I offered to provide him with before pictures but he wasn’t interested.

He admitted in his report that he could not find any recent comparable sales in the area and had to go quite a distance out, into neighborhoods that I would not consider equal. He seems to have based his appraisal purely on the last known sale price of homes of similar age and size, and completely disregarded the $ 175k in improvements that I’d made to my home.

Obviously, judging a home’s value by a recent sale price is flawed. We don’t know what the circumstances and conditions of that sale were. Foreclosure, short sale? Judging a home’s value by its age and dimensions is equally flawed as we don’t know whether that home has been updated in the last 50 years, whether it’s completely rotting inside or what.

His report also states that homes in the area have fallen 15-30% since 2005. Now, I would expect a super conservative appraisal to value my home at 70% of my purchase price and improvements at 80% of cost, putting the number closer to $ 455k. That would have put me at 25/75 LTV, and at least given me a chance to refinance.

Is it worth seeking other financial institutions, and pay another $ 400 for each additional appraisal? Do you expect my experience will be the same with all appraisers at this time? I’ve read that banks are encouraging appraisers to return values that represent an amount where at it would be impossible for a bank to lose money on the property in a foreclosure… roughly 60% of actual value.

Is it worth attempting to find independent appraisers and contest the bank’s appraisal? Is there anything I can do to force a bank appraiser to value my improvements, or just value my home higher in general?

Do I have any other options? I’d really like to refinance while rates are amazing, and I’d love to get cash out or as part of a HELOC for my business.

Rhetorical question/rant: why would people want to avoid foreclosure when their homes are being appraised at 50% of value? How many years does it take to get a foreclosure off your record? How many years will it take you to earn that $ 300k that your home just lost in value?

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