![]() ![]() Just to be clear: In and of itself, a non-arm’s length transaction is not illegal, nor is it necessarily a bad idea. ![]() Be sure to consult a tax professional, because the sale will be taxed differently depending on whether the transaction is considered a gift, like-kind exchange, or capital gain. On a personal level, a non-arm’s length transaction can have significant tax implications for both the buyer and seller. Sales between a trust and its beneficiaries.Sales between a parent company and one of its subsidiaries.Sales between an employer and his or her employees.Sales between family members or friends.Here are some common examples of deals that are not arm’s length transactions: That said, generally, any relationship where one party is felt to have significant power over the other or where the two are close enough to work together in their joint interest is seen as a red flag. In fact, this is how most real estate transactions play out.ĭefining what doesn’t count as “arm’s length” is a bit trickier, because it’s hard to identify whether or not someone is acting in self-interest or in the interest of someone close to them. To resolve this discrepancy, both sides agree to meet in the middle and sell the home for its fair market value. ![]() In most sales, a seller is trying to make a large profit, while the buyer is trying to pay the least amount of money possible. In real estate, an arm’s length transaction is when the buyer and seller each act in their own self-interest to try to get the best deal they can. In fact, this real estate term actually means you’re going about the transaction in a fair and legitimate way. So what is an arm’s length transaction? Turns out, it doesn’t mean you’re any less involved in buying or selling a home. Arm’s length transactions may sound like something that has to do with buying shirts, but they’re a big part of the real estate business. ![]()
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