You may have heard the term before and thought that it probably did not apply to you, or that it didn't really matter one way or the other. But it can, and it does- and it also applies to your home purchase or sale with non-arms length transaction(s) that were recently consummated in your immediate neighborhood.
An Arm's Length Transaction has no direct or indirect relationship with any party involved in that transaction, with the few exceptions being Spousal buyouts, an interest buyout of inherited property, or a gift of equity.
A NON-Arms Length transaction (NAL) will have a Conflict of Interest (COI) A Conflict of Interest may arise when any party to the transaction has a direct or indirect personal, professional, or financial relationship with any other non-borrowing party.
Some examples of Conflict of Interest include:
The Realtor or Lender is selling the property you are buying. Recent developments in lender requirements may necessitate the need for the buyer to obtain TWO bank appraisals rather than just one. (Just a note- you may want to negotiate that additional cost if you are buying a property that is owned by a Realtor)
The Builder of the home is also a Real estate Broker.
The broker or Realtor is representing either him/herself AND the buyer in a purchase or sale.
The buyer works for the lender.
The seller is the Lender's employee, or is related to, or associated with the seller of the property
Here are some examples of potential NON-Arm's Length Transactions.
Purchasing with intent to "flip" the property.
Properties purchased at auction.
Short Sale Transactions with a recent Notice of Default and a purchase price that is less than what is owing on the property.
Contractors or sub-contractors as purchaser.
Purchasers who are in the real estate, financing, or construction trades.
Employee purchasing from an employer, or any parties related by a business relationship.
Parties related by blood, marriage or domestic union or partnership.
Non -Arm's length transactions will have a negative effect on property values, and appraisers can identify them quite easily when appraising a home. The presence of any conflict of interest in your transaction should always be disclosed to the other party, and in some instances, it's the law.
If you have any questions about these types of transactions and how they can or may affect you, contact your attorney for clarifications.
And a note From Judy: If you have a question about buying or selling Real Estate in Fairfield County, and are in need of an Realtor to represent you, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.