What defines an arms-length transaction?

An arms-length transaction is defined as a sale between a willing buyer and a willing seller who are acting in their own self-interest and are not under any undue pressure or coercion to complete the transaction. This type of transaction implies that both parties have access to the necessary information and are capable of negotiating freely, allowing for a fair market value to be reached.

In contrast, transactions involving family members are typically not arms-length due to emotional ties and potential pressures that can influence the terms of the deal. Similarly, sales conducted under duress do not reflect a fair negotiation, as one of the parties may not be acting completely voluntarily. Additionally, a sale resulting from government foreclosure may also not represent an arms-length transaction, as it often occurs under specific conditions that may not align with typical market dynamics.

Thus, the correct identification of an arms-length transaction as one occurring between a willing buyer and a willing seller without coercion highlights the importance of fairness and the integrity of the transaction process in real estate and appraisal practice.