![]() The most significant benefit by far is that arm’s length transactions ensure that property is bought and sold for a fair market value more often than not. Arm’s Length Transactions Ensure Fair Market Value Because arm’s length transactions almost always represent the fair market value for a property, taxes are also usually accurate and fair for both parties.Īdditionally, the relationship-less nature of arm’s length transactions means fewer opportunities for a buyer or seller to face extra fines (more on this below). Arm’s Length Transaction Tax Implicationsįor starters, arm’s length transactions often provide tax benefits because it’s easy to estimate tax payments for such deals. However, even arm’s length transactions in which one party has an informational advantage over the other still qualify.īecause of their relative anonymity and straightforwardness, arm’s length transactions often have several advantages compared to traditional real estate deals. This ensures that both parties attempt to bid for their own self-interest to the best extent possible. Note that, for most arm’s length transactions to be legitimate, both parties must have access to the same amount of and quality of information. ![]() Simply meeting the other party is not usually enough to disqualify a deal as an arm’s length transaction – you have to have an actual relationship with the other party, such as be related to them, be friends, or be entangled in business affairs. The buyer will try to get as low a price as possible, and the seller will try to keep the price high as much as possible.īecause arm’s length transactions are done between two unrelated parties, they comprise the majority of real estate purchases and sales. In theory, this will ensure that true fair market value will be found and traded upon. Most of the time, this also means neither the buyer nor the seller knows one another.Īs a result, an arm’s length transaction ensures that both parties act in their own self-interests and aren’t subject to pressure from the other party. ![]() In a nutshell, an arm’s length transaction is any business deal where the buyers and sellers act independently and don’t influence one another. ![]()
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