Question: We purchased our home about a year ago for $280,000. We put 20 percent down and have a mortgage of $224,000 at 7.25 percent. Since then, we have done some significant improvements to the home. We remodeled the kitchen, added a patio and fence in the back yard, and carpeted the basement. All in all, we spend over $60,000 in cash. Now that rates are down and home prices are up, we applied to refinance our home and get our cash back. We were very disappointed when the appraisal came back with a value of only $320,000. Not only did we fail to increase the value of our home by the amount we put in it, but it seems that our property may not have appreciated in this strong market. Do you think we should question the appraiser?

Answer: It certainly can't hurt to talk to the appraiser. You haven't given me enough information to render a conclusion as to whether or not the appraisal report is unreasonable. It's very possible that his report is accurate because it is often difficult to get your money back dollar for dollar when making improvements. There are a couple of reasons for this.

First, despite all the economic woes you read about in the newspaper, the contracting business remains hot. Sales of existing homes continue to show strength. This has a lot to do with why it's so expensive to remodel your home. Here's why.

You're no different than anyone else who purchases an existing residence - you like the house and like the neighborhood, but it needs a bit of work. You need to put your signature on the house. All homes need some degree of work to satisfy their new owners. Maybe all that's required is a paint job. Other times, the new owners need to do much more work, such as building a new kitchen and adding a patio and fence.

The bottom line here is that as long as sales of existing homes remain strong, general contractors will be busy. Remodeling your home right now is expensive because there's no shortage of business for general contractors.

Over-improvement is another problem you could be facing. You new kitchen may be gorgeous, and I'm sure the appraiser is giving you some value for an upgraded, modern kitchen. But if you spent $10,000 on imported Italian marble, the appraiser is not going to raise the value of the house by $10,000.

Now let's talk about natural appreciation. Strong demand in housing has indeed created a rise in home prices. But this phenomenon is not consistent and can vary greatly from neighborhood to neighborhood. Ask your appraiser what comparable sales he used to justify your appraised value. Perhaps there are some homes that have recently been sold that are similar to your home that he missed.

At any rate, my advice is to speak with the appraiser and see if the report contains accurate information and solid comparable homes. If the appraisal appears to be accurate, consider refinancing your existing balance to lower your rate. After you've done that, go out and get a home equity line - they're dirt cheap these days. Most lines will allow you to borrow up to 90 to 95 percent of the home's value. This will allow you to get some, if not all, of the cash your spent on the improvements.

Published: September 4, 2002

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, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.