Arm's Length Transaction
A transaction between unrelated parties who are each acting in their own self-interest, where neither party is under duress or undue influence. Arm's length sales are the standard for developing market value opinions.
Non-arm's length transactions — such as sales between family members, foreclosures, short sales, estate sales, and corporate relocations — may not reflect market value because one or both parties may not be acting with full market motivation. Appraisers must verify the arm's length nature of comparable sales through MLS research, public records, and broker interviews. Non-arm's length sales can be used as comparables with appropriate disclosure and adjustment, but the appraiser must have a sound basis for any adjustments made for the terms of the sale.
Related Terms
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus..
Comparable Sale
A recently sold property that is similar to the subject property in terms of location, size, condition, and features, used as evidence to support the appraiser's opinion of value in the sales comparison approach..
Sales Comparison Approach
A valuation method that estimates a property's value by comparing it to similar properties that have recently sold in the same market area.
Seller Concession
A contribution from the seller to the buyer that reduces the buyer's out-of-pocket costs, such as paying for closing costs, points, or repairs.
More in Market Analysis
View allMarket Conditions
The current state of supply and demand in the real estate market for a particular property type in a defined area.
Absorption Rate
The rate at which available properties are sold or leased in a specific market during a given time period.
Days on Market (DOM)
DOMThe number of days between when a property is listed for sale and when it goes under contract.
Months of Supply
The estimated time it would take to sell all current listings at the current sales pace, calculated by dividing active inventory by the average monthly sales rate.