An arm’s length transaction is important in determining the market value of real estate. Appraisers know this term as it’s what helps determine if a comparable sale is truly comparable. So what’s an arms-length transaction?
The key concepts: the property must be on the open market for a reasonable amount of time, neither the buyer nor seller can be acting under duress, they must have reasonable knowledge of the property, be acting on their own self-interests, and from equal bargaining positions.
Here are the top 3 NON arms-length transactions:
- Bank owned property
- Family sale
- Most short-sales
THE BIG QUESTION: Why is this important in selling your house or buying a new house? If a sale is not an arms-lengths transaction it will not be used to determine the value of that property because it would not be market value.
Market value is the highest price a buyer would pay and seller would accept for an item in an open and competitive market.
-Just my thoughts. -Jenn
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