Your client gives you a copy of the tenant’s current lease, as well as a copy of the signed and executory purchase and sales agreement. Now, consider a situation in which a tenant in a duplex is the contract grantee. Yet, both of them call for the appraiser to use only arm’s-length transactions as comparable sales (which is what the definition of market value assumes). Surprisingly, USPAP does not define the term arm’s-length transaction. However, was that correct? Let’s go to USPAP to see what it says. This is how this concept was taught to me when I took my original appraisal classes, oh so long ago. In other words, it was a typical market transaction. I thought such a transaction was one where the buyer and seller were traditionally motivated there was no coercion, no bias no relationship between the parties.

Are we truly aware of its definition and its application? How often do we appraisers get into the mode where we think we know it all? Occasionally, do we need to step back and look at the way we do things, just to make sure we are not missing something? Is what we know to be true and correct really true and correct? I raise this issue relative to the concept of what an arm’s-length transaction is. Yet, both of them call for the appraiser to use only arm’s-length transactions as comparable sales… USPAP does not define the term arm’s-length transaction.

Non arms length transaction appraisal