GSEs

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?

Appraisal Business Tips 

Humor for Appraisers

Click here to subscribe to our FREE weekly appraiser email newsletter and get the latest appraisal news!!

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.

===========================================

Read more!! →