So what goes into a real estate appraisal? It all starts with the inspection. An appraiser's duty is to inspect the property being appraised to ascertain the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to ensure that they really exist and are in the condition a reasonable buyer would expect them to be. Most important, the appraiser looks for any obvious features or defects that would affect the value of the house.

Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income approach.

The appraiser uses information on local building costs, labor rates and other factors to determine how much it would cost to construct a property similar to the one being appraised. This often sets an upper-limit on the price of the property.

To come up with a sales comparison valuation, the appraiser compares other homes that have sold recently in the area, then adjusts for improvements, condition of the home, square footage, local market conditions, and other factors.

In the case of income producing properties, the appraiser may value the property on the amount of income the property produces and is likely to produce in the future.

Combining information from all approaches, the appraiser is then ready to propose an estimated market value for the subject property.