When buying or selling a property, emotions can run high, and sometimes, those closest people to a buyer might be interested in “getting in on” the deal. While a real estate transaction between family or friends can be tempting, prioritizing an arm’s length transaction offers several advantages that can help ensure a smoother and fairer process.
An arm’s length transaction occurs when a buyer and seller act independently, with no pre-existing relationship that could influence the negotiation or price. This means they have no familial ties, business partnerships or any other connection that might create a conflict of interest.
Fair market value
In an arm’s length transaction, both buyer and seller are motivated by self-interest. The buyer seeks the best possible deal, while the seller aims to maximize their return. This natural tension pushes the negotiation towards a price that reflects the property’s true market value. Comparable recent sales and market trends are the primary factors influencing the final price, reducing the risk of the property being undervalued due to emotional attachment.
Transparency and reduced risk
When dealing with friends or family, there is a potential for unspoken expectations or a reluctance to disclose any negative elements of the property. In an arm’s length transaction, both parties rely on professional guidance and disclosures. This transparency can minimize the risk of future disagreements or legal issues arising from misunderstandings.
Clear separation of business and personal relationships
Mixing business with pleasure can sometimes lead to complications. Arm’s length transactions help maintain a clear separation. If negotiations become challenging, it does not strain a personal bond. This can allow both buyer and seller to approach the deal with a focus on achieving their objectives without jeopardizing the relationship.
Arm’s length transactions potentially offer a secure and transparent framework for real estate transactions. Buyers and sellers can confidently navigate the buying or selling process by prioritizing fair market value, clear communication and separating business and personal interests. Additionally, consulting with a reliable legal team for arm’s length transactions can be invaluable in helping to ensure a smooth and successful experience.
