What is an arm's length transaction?

What is an Arm's Length Transaction in Real Estate?

An arm's length transaction refers to a deal in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm's length transaction ensures that both parties in the deal are acting in their self-interest, are not subject to any pressure or duress from the other party, and are dealing from equal bargaining positions.

In the context of real estate, an arm's length transaction is important because it ensures that the price agreed upon reflects the true market value of the property. For example, if a parent sells a property to their child for a significantly lower price than its market value, this is not considered an arm's length transaction.

The arm's length principle is a cornerstone in many legal and financial systems because it ensures that both parties are dealing fairly and independently, which is essential for the integrity of market transactions and for legal purposes, such as tax assessments and legal disputes.

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