An arm's length transaction is a sale between a willing buyer and seller, each acting independently and in their own best interest, with no special relationship or atypical motivation influencing the outcome. It is the foundational condition required for a sale to reflect reliable market value.
Appraisers evaluate arm's length status when selecting comparable sales, as transactions between related parties may not reflect true market behavior and require careful scrutiny or exclusion from the analysis. For loan originators, confirming arm's length status is a standard underwriting requirement — non-arm's length transactions carry elevated risk of misrepresentation or artificially influenced pricing.