What Is A Non-Arms Length Transaction?

By
Real Estate Agent with Integrity First Financial Group, Inc.
http://actvra.in/4jjW

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.  

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  1. Nevin Williams 09/20/2010 08:33 PM
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Rainmaker
494,751
Lora "Leah" Stern 914-772-4528
Real Estate Salesperson
Coldwell Banker, 170 N Main Street, New City NY 10956

Stephanie, thanks for explaining this so well.  Since buying or selling a home has an emotional factor built into the equation, it's often difficult to "leave the emotion behind" in a non-arms length transaction.  Hopefully in these cases, forwarned is forarmed.

September 20, 2010 08:26 PM
Rainmaker
395,779
Nevin Williams
Raleigh Mortgage Pro
Sierra Pacific Mortgage Raleigh

Stephanie - Outstanding explanation!  Re blogging and suggesting for feature

September 20, 2010 08:31 PM
Rainer
228,888
Stephanie Reynolds
East County San Diego Homes 619-838-4408
Integrity First Financial Group, Inc.

I am currently working with a client that is involved in a non-arms length transaction and thought it was a great phrase that gets thrown around without a lot of explanantion!

September 20, 2010 08:37 PM
Rainmaker
1,248,279
Carla Muss-Jacobs, Principal Broker/Owner
Buyer Focused ~ Buyer Results
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time

This is a very good explanation. I've had parents sell their grown-adults property, it was disclosed.  It's those non-disclosure things that'll come back to bite a person. 

September 20, 2010 08:39 PM
Rainmaker
351,438
Damon Gettier
Broker/Owner ABRM, GRI, CDPE
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert

Great Blog!

I am constantly having short sale buyers and sellers fill out affidavit's to assure the bank that it is an arms length transaction.

September 20, 2010 10:19 PM
Rainmaker
848,609
Lottie Kendall
Serving San Mateo County and San Francisco
Today | Sotheby's International Realty

Hi Stephanie -- thanks for this great explanation. I caught Nevin's re-blog, but wanted to thank you for writing it!

September 20, 2010 10:23 PM
Rainmaker
1,199,773
Tony & Darcy Cannon
The C Team
Keller Williams Legacy

Stephanie, great post!  I agree, everyone needs an agent!

September 21, 2010 01:22 AM
Rainmaker
230,740
Candice A. Donofrio
928-201-4BHC (4242) call/text
Next Wave RE Investments LLC Bullhead City AZ Commercial 928-201-4242

SUGGESTING! Short sales, government deals and financing especially are going to hit snags with non arm's length transactions . . . and that relationship can be by marriage or by business partnership too, depending on the situation . . .

September 22, 2010 01:35 PM
Rainmaker
94,131
Randy Randolph
Uber Broker , Redmond, Kirkland, Renton, Short Sales
RSVP Real Estate

I have non arms length transaction and it has been fully disclosed to everyone evolved in the transaction. It is a case where I am the listing agent of my brother's condo. I was just told buy the lien holder that they would not approve a non arms length transaction, which this is. Anyone have a suggestion?

September 29, 2010 07:55 PM
Rainer
228,888
Stephanie Reynolds
East County San Diego Homes 619-838-4408
Integrity First Financial Group, Inc.

Hi Randy,

Thanks for stopping by. I have sent you an email hoping to find a solution to your dilemma!

September 29, 2010 08:09 PM
Rainmaker
94,131
Randy Randolph
Uber Broker , Redmond, Kirkland, Renton, Short Sales
RSVP Real Estate

Thanks for your email Stephanie - another question that this has brought up is:

If an agent in my office has a property they need to sell as a short sale and hire me to do the listing and then an agent for our office finds a buyer to buy the property, this would not be an arms length. It would be a dual agency at least. Does anyone have any ideas how the lien holders would treat this type of transaction?
September 29, 2010 08:13 PM
Rainer
13,461
Evette Cecena
Technology Monsters - Internet Marketing & IT Support

Stephanie - Great article

Randy - Check with your Broker.  If your Broker doesn't know the answer call the board.  In Arizona all agents are considered subagents under the Broker who is the Agent.  Therefore, dual agency is created when one agent from the office represents the Seller and another agent from the same office has a Buyer, because both are subagents of the Broker.  As long as the buyer understands that their agent is not actually representing them as a client it is fine, but I don't think most agents know this out here so they just refer buyers to an agent in their office thinking this is avoiding dual agency. As far as short sales go I would definitely stay away from dual agency and refer the buyer to a another brokerage for representation. 

November 04, 2010 03:30 PM
Rainmaker
905,853
Tony Marriott
Associate Broker, REALTOR
Haven Express @ Keller Williams Arizona Realty

Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil.

December 14, 2010 08:43 AM
Anonymous #15
Anonymous
joanne phillips

If the buyer has a former business relationship with the seller, in a short sale situation, where dual agency representation is disclosed to all.  Is this still considered Non-arms length if there is no present business relationship?

June 02, 2011 01:49 PM
Anonymous #16
Anonymous
Sherrie Clark

Hi Stephanie,

Thanks so much Every time I have this question come up I have to look it up. Funny!

I know more today than ever because of your blog. If you need a lender to do these please dont hesitate to call me at Primary Residential Mortgage, INC

(707) 480-8655

Sherrie

June 30, 2011 04:53 PM
Anonymous #17
Anonymous
Barb
I want to buy my husband (and his ex-wifes) house. Can I do this for fair market value?
January 25, 2012 04:20 PM
Rainer
13,461
Evette Cecena
Technology Monsters - Internet Marketing & IT Support

Barb - I think you should consult an attorney before doing this.  Banks don't take to kindly to short selling to family. I'd be surprised if you were allowed to do this.

February 21, 2012 09:23 PM
Anonymous #19
Anonymous
Sam

Are house sales/buyouts between spouses due to divorce settlements listed as Non-arm length transactions? And if so is that ok. Who makes the decision as to what type of transaction  ( Arm or Non-arm) it is going to be? Thanks for your response.

February 25, 2013 08:16 AM
Anonymous
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Rainer
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Stephanie Reynolds

East County San Diego Homes 619-838-4408
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