Okay, here is my take. I am an appraiser and before I go any farther: each State's appraisal board (assuming your State has one) view issues such as this very differently and State boards are the police of our industry; I am not certified in your State and will not profess to have all of the answers; I am making lots of assumptions because I do not know your property and am operating on limited data. Disclaimer over.
The two forms noted in your post, the 1004 and the 1025, are FNMA forms (Freddie also uses them under different nomenclatures). Typically, what you are calling a "workshop / liveable space" is known as an accessory unit. The 1004 is set up to accommodate accessory units. It can be done; this is not the problem and there is no need to use the 1025 form, which is a 2-4 unit residential form. The problem is that the appraiser is charged with estimating the contributory value of the accessory unit in that case. The value contribution can be estimated in many ways, but the appraiser has to bare the burden of proof, which--at times--makes it hard for anomalies like this. The contribution of this accessory unit can be estimated by income capitalization, paired data analysis, or depreciated cost to name a few. What I am reading in your post is that he/she felt the need to have a sale that has the same physical feature to make a reasonable comparison and that is not necessarily true; the contribution of this--and virtually any--item can be extracted from the market from the above-noted methods as well as others.
Do not confuse what I am about to say, I'm not taking sides, but the problem may be with the appraiser's knowledge of his client (the bank) and its underwriting standards. With all of the changes to this and affiliated industries of late, ie...Dodd-Frank Bill and Interagency Guidelines, underwriting standards have become ridiculous and the appraiser may be trying to bow out graciously. Then again, he/she may not be competent to appraise your property; again I am operating on a limited amount of information. It saddens me to say it, but not all appraisers know what they are doing, it is the same in all professions. We can only hope that they get better as they go.
In reference to the fee, did the appraiser complete the appraisal assignment? If not, he/she will likely just get a trip fee (usually $100 or so, but I cannot quote their fee for them). I am assuming that this is and will be the case because it does sound like he/she is bowing out by the "could NOT do an appraisal" comment.
Second appraisal: you can contest the appraisal with the bank, though it sounds like one was not completed, and they can have another appraiser complete the assignment. My two cents to put into this is to have the bank use a Certified General appraiser! A Certified General appraiser is one who can appraise any property type that they are competent to appraise, not merely a Certified Residential who is only permitted to appraise 1-4 unit residential property. What this will do is likely assure you that you have someone who can think outside the box (or the form, as it were). I have some additional thoughts on further assurances in regard to appraisers that belong to specific professional organizations, but I do not want to plug specific professional organizations and get booted from the post. Nevertheless, to keep this uptown, I will say that not all professional organizations are created equally in the appraisal profession and some have--generally--more knowledgeable candidates and designates. Get a better quality appraiser and you will get a better product, though it may be slightly higher in fee.
