What is a non arm's length transaction in real estate?
What is a Non-arm's Length Transaction?
A non-arm's length transaction in real estate refers to a deal in which the buyer and seller have a pre-existing relationship, whether familial, personal, or business-related, potentially affecting the fairness and market value of the transaction.
Examples of Non-Arm's Length Transactions
Here are some examples of non-arm's length transactions:
- Family Sales: A parent selling a property to a child at a below-market price.
- Employee Sales: A company selling property to an employee at a favorable rate.
- Business Partners: Partners in a business who buy or sell real estate to one another.
- Investment Deals: An investor selling property to another investor or entity with whom they have a personal connection or shared business interests.
- Friend Transactions: Buying or selling property to a friend under terms that might not reflect the true market value.
These transactions are closely scrutinized by lenders and tax authorities to ensure fairness and compliance with all relevant laws and regulations, as they may not reflect an open market transaction where the price is determined by supply and demand.