A non-arm's length transaction is a sale in which the buyer and seller share a pre-existing relationship — such as family members, business partners or affiliated entities — raising the possibility that the final price was influenced by factors outside normal market dynamics.
These transactions are generally excluded from comparable analysis or used with significant caution, as the relationship between parties can distort pricing in either direction. When the subject property itself is part of a non-arm's length transaction, appraisers must disclose the relationship and assess whether the contract price is supported by market evidence. Loan originators should identify these transactions early, as most lenders require additional documentation and heightened review.