Arm's Length Transaction

A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm's length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.

The concept of an arm's length transaction commonly comes into play in the real estate market. When determining the fair market value of a piece of property, the price for the property must be obtained through a potential buyer and seller operating through an arm's length transaction, otherwise, the agreed-upon price will likely differ from the actual fair market value of the property.

For example, if two strangers are involved in the sale and purchase of a house, it is likely that the final agreed-upon price will be close to market value (assuming that both parties have equal bargaining power and equal information about the situation). This is because the seller would want a price that is as high as possible and the buyer would want a price that is as low as possible.

This contrasts with a situation in which the two parties are not strangers. For example, it is unlikely that the same transaction involving a father and his son would yield the same result, because the father may choose to give his son a discount.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • arm's length transaction — Said of a transaction negotiated by unrelated parties, each acting in his or her own self interest; the basis for a fair market value determination. A transaction in good faith in the ordinary course of business by parties with independent… …   Black's law dictionary

  • arm’s length transaction — A transaction at *fair market value between unrelated parties, or a transaction made as if it were between unrelated parties for example, All the sales between the corporation’s overseas branches are made at arm’s length …   Auditor's dictionary

  • arm's length transaction — сделка между неаффилированными лицами, предполагает использование рыночных цен и тарифов и отсутствие между контрагентами фидуциарных отношений …   Glossary of international commercial arbitration

  • arm`s length transaction — business dealing between two parties that are independent of each other …   English contemporary dictionary

  • arm's length — n: the condition of the parties to a business deal in which each has independent interests and one does not dominate the other often used in the phrase at arm s length a contract made at arm s length arm s–length adj Merriam Webster’s Dictionary… …   Law dictionary

  • Arm's length principle — The arm s length principle (ALP) is the condition or the fact that the parties to a transaction are independent and on an equal footing. Such a transaction is known as an arm s length transaction . It is used specifically in contract law to… …   Wikipedia

  • arm’s length — /ɑ:mz leŋθ/ adjective ♦ arm’s length transaction a transaction which is carried out by two parties with no connection between them (resulting in a fair market value for the item sold) ♦ to deal with someone at arm’s length to deal as if there… …   Dictionary of banking and finance

  • arm’s length — adj. Distant, not intimate; describes a good faith, fair market transaction by parties with relatively equal bargaining power, in which neither one forces the other to accept terms. The Essential Law Dictionary. Sphinx Publishing, An imprint of… …   Law dictionary

  • Arm's Length Market — A financial market consisting of parties that have no relationship or contact with one another aside from the transaction at hand. In the United States, the majority of exchanges are considered to be arm s length, where buyers and sellers are… …   Investment dictionary

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