![]() The seller is trying to get the lowest price.įor an example of an official definition, the Federal Housing Administration (FHA) has this description: That is, the buyer is trying to get the highest price. The parties are acting in their own self-interest.Neither has the ability to coerce the other on the terms of the deal. They each have equal bargaining power.In essence, they don’t have any family or professional ties. The parties to the deal-generally the buyer and seller-have no pre-existing relationship.Some lenders require that some transactions only be arm’s length deals.īut don’t worry, you can still do a deal with both family members and business partners without breaking any laws. Generally, there are three aspects of an arm’s length transaction: It’s important to understand that an arm’s length transaction is not illegal. The details may vary according to the lender or taxing authority. The definition of an arm’s length transaction will be laid out in the affidavit you’ll be presented with at closing. What Is an Arm’s Length Transaction?Īn Arm’s Length Transaction is a transaction between unrelated parties who are each acting in their own best interest. ![]() And they should know how to reassure lenders and taxing authorities that a real estate transaction is done at arm’s length. When it comes to tax consequences, a non-arm’s length seller may wind up with an unexpected tax bill.Īny real estate agent or other real estate professional needs to understand the arm’s length principle. In some cases, lenders won’t finance a deal unless it is an arm’s length transaction. Why Arm’s Length Transactions Are Important.What’s Not an Arm’s Length Transaction?. ![]()
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