In such transactions, it’s more difficult to establish the true market value of the home. A non-arm’s length transaction might be evidence of a conflict of interest. Instead of the mom working in her daughter’s best interest by lowering the sales price, an arm’s length transaction would mean the mom would deal in her own best interest and ask for the highest price possible. Because she’s her daughter, it’s very likely the sales price would be very, very attractive and not a price what an anonymous buyer would get. This ensures there is no favoritism the seller shows when establishing a sales price.įor example, let’s say a mother decides to sell her home to her daughter and move into a smaller home for retirement. Further, all parties in a real estate deal must also not have any formal or business relationship. It’s a transaction where both parties, in the case of real estate the buyer and the seller, are negotiating independently and have no familial relationship with one another. It’s a figurative term which means any deal made must be at arm’s length as it relates to negotiations. But to understand its meaning perhaps it’s easier to first get clear on what a non-arm’s length transaction is. It’s quite possible you’ve heard of this term but not truly understand what it means.
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