What Is A Non-Arms Length Transaction?
This is a fantastic question. Most real estate transactions completed are considered to be an Arms Length Transaction. This means everyone involved is acting independently and have no relation to one another. It is assumed that with no personal interest in the relationships between parties, the transaction will be fair and equitable to all parties.
With a Non-Arms Length Transaction, the relationship of parties could potentially could create an influence of a decision with regards to price, discounts of costs of services being provided or both. There may be many different types of relationships involved in a non-arms length transaction. Any time there is a relationship between any of the parties it should be disclosed.
Why would a non-arms length transactionaffect your purchase? Perhaps the listing agent of a property is the mother of the person selling the home. This may affect your purchasing power. Mom wants the best possible deal for their child, and this emotional involvement could persuade decisions being made on offers being presented. Or, it may not make a difference at all. You would want to know this information up front versus later on in the transaction. That way you are able to determine if the relationship between parties makes a difference to you.
If YOU are related to the seller and decide to purchase their home it would be considered a non-arms length transaction. Depending upon the type of transaction you are doing, your lender may have a concern with the non-arms length transaction. There may be specific requirements such as owner occupancy and Loan To Value limitations depending upon the loan program. Prior to entering into contract on a home with a relative, be sure and check with your lender for the specific guidelines on non-arms length transactions.
In every real estate transaction it is important to have your own representation. Make sure if you are working in a non-arms length situation, the relationship is disclosed. From any side of the transaction; agent, buyer or seller. Make sure all parties are aware of the relationship and leave the emotions out. Business is business. Even in a non-arms length transaction.