What Is A Non-Arms Length Transaction?

By
Real Estate Agent with Integrity First Financial Group, Inc.

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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Anonymous #15
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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
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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
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Rainer
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Stephanie Reynolds

East County San Diego Homes 619-838-4408
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