What Does Arm’s Length Mean in Real Estate?

The 7 Sale Types Explained

Excerpts: An arm’s length sale – a sale in which the buyers and sellers act independently and in their own self-interest is the most common type of real estate transaction. However, there are six other types of real estate transactions that you need to know about so you can specify these sale types in your appraisal report as they can affect the market value of the property.

A non-arm’s length sale in real estate is a transaction between a seller and buyer who have a connection by marriage, family, work, etc. Because of their relationship, each party may not be acting in their own best interests. Therefore, the final price may not reflect the market value of the property.

The type of sale can provide some clarity into whether the transaction was (or currently is) an arm’s length transaction, whether a comparable sale should be used, or whether an adjustment is warranted for the terms of sale for a comparable. By knowing the type of sale, you are better able to reconcile a current opinion of market value that falls above or below a current or recent transaction for the subject property.

For appraisals required to be Uniform Appraisal Dataset (UAD) compliant, you must indicate the type of sale for the transaction. You may report any other relevant information regarding the sale type in the appraisal report, including whether more than one sale type applies.

Non-arms length sales include: REO, Foreclosure, short sale, court ordered sale, estate sale and relocation sale.

To read more, Click Here

My comments: We all see comps that seem to sell below market. This post’s information can be very helpful in explaining why. It’s a good discussion of this topic.

I have done a lot of estate appraisals. Some estate sales occur when the beneficiaries just want to get rid of the property and don’t want to fix it up for sale. I always tell them that the sales price will be reduced.

I have also done many relocation appraisals, done before the home is listed. You are “graded” on how close you come to the sales price. I sometimes see low sales for various reasons.

What should appraisers look for in a sales contract?

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NOTE: Please scroll down to read the other topics in this long blog post on agent concessions, History of appraisal bias back to 1930s, “one mile” rule and bias, unusual homes, mortgage origination stats, etc.



Oceanfront Estate on Kauai’s South Shore $13,995,000

Excerpts: 4 bedrooms, 4 baths, 3,706 sq.ft., Acres: 0.7960055, built in 1993

The residence in Poipu was built in 1993 and designed by Seattle architect Ralph D. Anderson as his family’s vacation home. The home is surrounded by floor-to-ceiling glass doors with spectacular views of Poipu Beach and the Pacific Ocean.

The late, famed Seattle architect, Ralph D. Anderson, loved Kauai and created this, his personal home, at one of Kauais favorite surf spots right in Poipu Beach. Mr. Anderson knew great real estate when he saw it and for his personal residence he spared nothing in designing a masterpiece set on a peninsula where days meld to weeks and then years of oceanfront sunrises, sunsets, surf and sea. The site has nearly 300 feet of oceanfront living.

The 3,700 square foot residence includes 4 air-conditioned ocean view suites and 4 baths with every element of the home facing south toward the prominent ocean and white-water surf views. It’s all here at Sunset Makai Hale. FEATURES Land Area: 34, 675 Interior Area: 3, 706 Active Vacation Rental Solar Heated Pool Air-Conditioned Suites Extensive Oceanfront Lanai Built in BBQ Fully Landscaped

To watch the video, Click Here

To read the listing Click Here

My comments: Kaui is my favorite Hawaiian Island. I love this waterfront house with great views on three sides ;> The first 30 years I lived in my city, we were on the water with boat docks.


GSEs Confirm Existing Policy on Concessions from real estate agents’ payments of buyer agent’s commission

Fannie Mae and Freddie Mac (GSEs) each released notices that confirmed that their policies will continue to exclude seller or listing agent payments of buyer agents’ commission from interested party contributions (IPCs). If a seller or seller’s real estate agent continues to pay the buyer’s real estate agent commission in accordance with local common and customary practices, the amounts are not required to be counted towards the IPC limits.

• The GSEs also noted that they will continue to evaluate their requirements on real estate agent commissions to determine any necessary changes that may be needed in the future.

To read the MBA summary Click Here

To read Freddie letter, Click Here

To read Fannie notice, Click Here

My comments: This has been a hot topic for appraisers, who were hoping no new concession adjustments are needed. Especially now, when what will happen in the real world is not clear.Are you getting too many ad-only emails?


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The One-Mile Rule: Prudent Policy or Modern Day Redlining?

…whether through redlined maps or implicit “one-mile rule,” the result can be undervalued properties in historically marginalized neighborhoods.

By Dallas T. Kiedrowski, MNAA

Excerpts: When appraisers are used, they often face revision requests from underwriters seeking clarification if their chosen comparables diverge from those preferred by the GSEs’ computer program. This typically occurs when the GSEs’ algorithms suggest comparables closer in proximity to the subject property than those selected by the appraiser. While it may no longer be explicitly termed the “one-mile rule,” its effect remains the same.

This practice may shed light on why the correlation between home values and neighborhood racial composition strengthened again from 1980-2015, while the connection between home values and traditional factors like housing characteristics, construction quality, neighborhood amenities, and socioeconomic status weakened. This trend coincides with the acceptance of the GSE’s policies as the industry standard.

When appraisers are required to operate within predefined parameters set by underwriting guidelines, whether through redlined maps or implicit “one-mile rule,” the result can be undervalued properties in historically marginalized neighborhoods.

Moreover, the increasing correlation between home values and neighborhood racial composition highlights how technological tools, intended to streamline processes and improve accuracy, can inadvertently exacerbate discriminatory practices.

In the 1930’s, appraisers (then known as valuators) were instructed to follow a rating system. When evaluating a property’s location, they turned to Part II Section 226-289 for guidance on “PROTECTION FROM ADVERSE INFLUENCES.” This aspect was underscored as pivotal, emphasizing its significance in the rating process.

Adverse influences, as outlined in the Underwriting Manual, encompassed factors such as “the infiltration of business and industrial uses, lower class occupancy, and inharmonious racial groups.” Appraisers/Valuators were tasked with gauging the level of “protection” against these adverse influences or assessing the associated “risk” they posed.

… the guidelines established by the GSEs emerged as the de facto standard, wielding significant influence over residential appraisal practices from 1980 to 2015, a sway that persists to this day.

A prominent example is the “one-mile rule,” an informal yet widely acknowledged practice among underwriters and appraisal reviewers. This unwritten mandate restricts appraisers to selecting comparable properties within a one-mile radius of the subject property, thereby discouraging exploration beyond this arbitrary circular boundary, despite the irregular shape of most real estate markets

To read more Click Here

My comments: The post is a long analysis of the history of bias and discrimination, going back to the 1930s, including inclusion in appraisal textbooks. Worth reading.  Until a few years ago, I did not know that certain races were a negative value factor in older appraisal textbooks.


Fannie Mae ‘Census Block Grid’ Adjustment Raises Redlining Concerns

Excerpts: “FNMA’s collateral underwriter tool has a line item adjustment it makes on every comparable called Census Block Grid.”

In a recent discussion within the comments section of an article titled ‘The Censorship of Appraisers’ (By Jeremy Bagott, MAI), an appraiser shared a concerning statement from an underwriter about an adjustment made by Fannie Mae’s Collateral Underwriter tool. The underwriter revealed that the tool uses a ‘Census Block Grid’ adjustment (CBG) to evaluate comparable property values. This adjustment, which modifies values based on median home values within specific census blocks, raises concerns for potentially reflecting practices akin to redlining – a discriminatory practice that is now illegal.

While often overlooking the CBG adjustment, the underwriter conceded that it might occasionally offer useful insights, yet also acknowledged the problematic nature of such a methodology and anticipated possible legal repercussions for Fannie Mae.

Given Fannie Mae’s secrecy around the Collateral Underwriter tool, little information is available on the Census Block Grid adjustment. However, if true, this represents a troubling practice – a government sponsored enterprise providing discriminatory adjustments based on census data that appraisers cannot legally consider, while sharing the data openly with underwriters.

To read more, Click Here

My comments: for a while I have been reading comments from appraisers about GSEs using Census Tract Groups to analyze appraisal reports. Hopefully, what is discussed above is not what GSEs do today. If so, GSEs should send a notice about it.


Unusual Home Exterior Color in Atlanta, GA

Price cut: $205K (3/20) Now $1,995,000

Excerpts: 5 bedrooms, 5 baths, 3,307 Sq.Ft., built in 2000.

No detail has been spared in this thoughtful renovation, from the custom three-story open square-nosed European tread lightwell staircase to the wide plank Stuga white oak flooring, to the dramatic designer lighting fixtures throughout.

The gourmet Kitchen features an oversized island, inset Keystone white oak cabinets, a handmade clay tile backsplash, 48” Wolf range and built-in panel front Sub-zero fridge, a quartzite-capped antique farmhouse table and a Butler’s Pantry with additional inset cabinetry, a second dishwasher, and full-size sink….

For more information and 94 exterior and interior photos, Click Here

My comments: I’m not surprised at the price drop. What is the cost to repaint exterior? Adjustment for black exterior? From Zillow Gone Wild!, of course.


HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, Click Here.

Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample go to www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.

My comments: Rates are going up and down. Many appraisers are not busy. Some are busy, usually with non-lender appraisals.Mortgage applications decreased 2.7 percent from one week earlier

WASHINGTON, D.C. (April 24, 2024) — Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 19, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index decreased 6 percent from the previous week and was 3 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.2 percent compared with the previous week and was 15 percent lower than the same week one year ago.

“Mortgage rates continued to move higher last week, reaching their highest levels since late 2023 and putting a damper on applications activity. The 30-year fixed rate increased for the third consecutive week to 7.24 percent, the highest since November 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply. The ARM share of applications increased to 7.6 percent, consistent with the upward trend in rates, as buyers look to reduce their potential monthly payments.”

The refinance share of mortgage activity decreased to 30.8 percent of total applications from 32.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.6 percent of total applications.

The FHA share of total applications increased to 12.8 percent from 12.3 percent the week prior. The VA share of total applications decreased to 11.7 percent from 12.4 percent the week prior. The USDA share of total applications remained unchanged from 0.4 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.24 percent from 7.13 percent, with points increasing to 0.66 from 0.65 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) increased to 7.45 percent from 7.40 percent, with points increasing to 0.56 from 0.46 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 7.01 percent from 6.90 percent, with points decreasing to 0.94 from 0.99 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 6.75 percent from 6.64 percent, with points remaining unchanged at 0.64 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The average contract interest rate for 5/1 ARMs increased to 6.64 percent from 6.52 percent, with points increasing to 0.87 from 0.60 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100.


Ann O’Rourke, MAI, SRA, MBA

Appraiser and Publisher Appraisal Today

1826 Clement Ave. Suite 203 Alameda, CA 94501

Phone: 510-865-8041

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