What Does Arm’s Length Mean in Real Estate? The 7 …

Home For Sale real estate sign in front of single family house

As a real estate appraiser, it is imperative to know whether a transaction is an arms-length sale, a non-arm’s length sale, or a different type of sale. Properties sold due to a job relocation, estate settlement, foreclosure, or divorce may sell for less than market value. Therefore, whether you’re considering the current terms of sale or analyzing previous sales of the subject property or comparables, you must take the sale type into consideration.

Before we dive into the seven valid sales types, let’s take a moment to review key definitions and answer common questions like, “What does arm’s length mean in real estate?” and “What’s the difference between an arm’s length vs. non-arm’s length sale?”

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What is market value?

In general, market value is defined as the most probable price a property should bring in a competitive and open market. This definition requires an arm’s length transaction with each of the parties acting in their own best interests. Additionally, it requires that the buyer and seller are not acting out of undue haste or duress and that the real property has been exposed on the market for a reasonable period of time.

What is an arm’s length transaction in real estate?

Here are the definitions for an arm’s length sale vs. a non-arm’s length sale:

What does arm’s length mean in real estate?

An arm’s length sale in real estate is a transaction between an unrelated seller and buyer. In this type of transaction, each party acts independently and in their own best interests. The property is exposed on the market for a reasonable length of time and is unaffected by special financing or sales concessions. Therefore, the sale price most likely reflects the market value.

What does non-arm’s length mean in real estate?

A non-arm’s length sale in real estate is a transaction between a seller and…

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