What kind of transaction is likely to be most valid for determining value?

An arms-length transaction is generally recognized as the most valid type of transaction for determining value because it occurs between two willing and knowledgeable parties acting in their own self-interest, with no undue pressure or special relationship affecting the sale. In such transactions, both the buyer and seller have equal bargaining power, which helps ensure that the transaction reflects the true market value of the property.

This type of transaction demonstrates conditions typical of a free market where the price agreed upon is a fair representation of the property’s worth, as it is based on market dynamics rather than external influences. The resulting sale price from an arms-length transaction can therefore be a reliable indicator when appraising property values.

In contrast, auction sales may not always represent fair market value due to factors such as time constraints, bidder competition, or emotional purchase decisions that could skew the final price. Distressed sales often occur under pressure, such as foreclosures or urgent sales, which can significantly undervalue the property due to the seller's need for a quick transaction. Real estate investment trust (REIT) sales involve specific structures that may not reflect typical property market conditions since they could involve bulk transactions and different valuation methods due to the nature of such investments.