The appraisal is carried out by a professional appraiser, usually one experienced in valuing real estate in the area. He uses comparisons, sometimes called comps as the basis for the estimate. The comps give him recent purchase prices of similar properties in the area. He then applies standard adjustments for differences like square footage, number of bathrooms, etc., to arrive at an official appraised value.
The appraised value can be a critical factor in determining how much can be borrowed on a property. If the sales price is far higher than the appraised value, the mortgage loan may not be approved.