What is an "arm's length transaction"?

An "arm's length transaction" refers to a sale that occurs between unrelated parties, where both parties involved act in their own self-interest, and the transaction is conducted at fair market value. This type of transaction is crucial in real estate appraisal and valuation because it reflects a genuine exchange of property, free of any undue influence or special conditions that might distort the value.

In essence, the characteristics of an arm's length transaction ensure that the price paid is a true representation of the property's market value, providing a reliable basis for appraisers and investors to assess property worth accurately. This concept is fundamental for achieving a transparent and competitive market environment where prices are determined by supply and demand rather than personal relationships or external pressures.