Illinois Real Estate Practice Exam

A developer buys a mansion and converts it into 3 condos. What approach would the developer use to arrive at the market value for the condos?

1. Market Data Approach

2. Cost Approach

3. Income Approach

4. Sales Comparison Approach

The correct answer is: Sales Comparison Approach

The most appropriate method for the developer to determine the market value of the converted condos is the Sales Comparison Approach. This approach involves analyzing recent sales of similar properties in the area to estimate what buyers are currently willing to pay. Since the condos are newly created from a mansion, comparable sales of similar condominiums would provide a clear basis for valuation, reflecting current market conditions and buyer preferences. Using this approach allows the developer to consider adjustments based on differences in location, size, amenities, and condition between the condos and the comparable properties. This method is particularly effective in residential markets where there are many properties of similar nature available for comparison. While the other options can also provide insights, the Cost Approach typically focuses on the expenses of building a property from the ground up and may not accurately reflect the current market value of existing condominiums. The Income Approach is more relevant for investment properties that generate rental income, which might not apply directly to the developer's goal of selling condos. The Market Data Approach is not a recognized term within real estate appraisal and may cause confusion since it generally overlaps with the Sales Comparison Approach in practical usage.