What is an 'arm's length transaction'?

An 'arm's length transaction' is defined as a transaction that occurs between two willing and informed parties who are acting in their own self-interest, ensuring that the transaction reflects fair market value and is not affected by any personal relationships between the parties involved. This concept is crucial in the appraisal process as it helps to establish an unbiased market value by demonstrating that the parties have no conflicts of interest that might influence the terms of the sale.

In an arm's length transaction, both the buyer and the seller are independent and operate without any undue pressure or special considerations, meaning that the sale price accurately represents the value of the property in the open market. This integrity helps appraisers and other stakeholders understand market dynamics and arrive at accurate valuations based on actual sales data.

The other options present scenarios that do not align with the definition of an arm's length transaction. Transactions involving related parties can lead to biases and subjective valuations, non-monetary exchanges do not reflect typical market transactions, and sales that occur without a real estate agent may still be influenced by personal factors and relationships, hence failing to ensure the market-driven value that characterizes arm's length transactions.