A transaction freely arrived at in the
open market, unaffected by abnormal pressure
or by factors limiting competitive
negotiations, as might be the case in a
transaction between related parties.
Arm’s length transactions are important
in appraisals to reflect fair market value
when making adjustments under the direct
comparison approach and arriving at the
estimated value of a subject property. These
sales are also very important for various
taxation matters relating to the purchase
and sale of real estate.
A sale involving a nominal purchase
price, which is transacted between family
members, would not be considered at arm’s
length. Further, a disposition of property
through transfer of title from both spouses
to one spouse in a divorce settlement would
not normally be conducted at arm’s length.
Transactions through the Multiple
Listing Service (MLS) are usually conducted
at arm’s length as the parties are typically
unknown to each other, no abnormal pressure
exists, and free market forces prevail.
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