Non-Arms Length Sale?

[Tumbuktu]

• Contract Price is 75% of the Market Value (25% less than what it could sell for)
• Subject is not Listed
• It is being sold to the tenant who has lived in the property for the past five years
• As per Tenant, he had an understanding with the owner at the time of renting (5 years ago) that he will purchase the property after certain years at certain discount

I suppose this is a Non-Arms Length Sale. As always, feedback and guidance would be appreciated.

 

[Mr Rex]

I would consider it an Arms Length Sale as the parties are not related. It is not a market value transaction due to the prior association between the parties. In any case, narrative description of the circumstances would mitigate the back and forth over the formal definition of Arms Length etc.

 

[Pittsburgh Pete]

It is arm's length (unrelated parties under no duress) but not at market. Although one could say that as landlord-tenant they are related. As Rex advises, "when in doubt, spell it out."

 

[J Grant]

Imo it is non arms length "related" does not have to mean blood relatives, it can mean the parties are related to another via relationship, business partnership etc outside of the sale transaction. ( and the prior relationship could affect terms or price )

Market value or not is its own analysis, the SC price is particular to their rental and prior agreement on a discounted price.

 

[Tumbuktu]

Thanks. I was confusing it with Market Value . . . ."both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; . . "

Could "Duress" be interpreted as "Not considering the best interest"

 

[J Grant]

An arm length's transaction is a transaction in which the buyers and sellers of a product act independently and have no relationship to each other.
A non arms-length transaction would be when the buyers and sellers of a product have an existing relationship with each other.

Above from Trulia, lots of definitions of arms length and non arms length have same /similar criteria, though some have further explanations about duress etc but the main criteria is an existing relationship between a buyer and seller

This buyer and seller via their long term landlord /tenant have an existing relationship and one that pre dates the sale. How can it be confused with the definition of market value ?

 

[Pittsburgh Pete]

Thanks. I was confusing it with Market Value . . . ."both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; . . "

Could "Duress" be interpreted as "Not considering the best interest"

No, duress is what it is--pressure, undue influence, etc.

 

[J Grant]

ACIweb | What is an Arm’s-Length Transaction?

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good stuff above, fannie can be maroons at time but Imo their verbiage nails it ( note above duress is removed by AI which makes sense because it never belonged there)

 

[gregb]

At the time this contract was negotiated there was no relationship between the buyer and seller.

 

[J Grant]

At the time this contract was negotiated there was no relationship between the buyer and seller.

?? The contract was predicated on their relationship over the years as landlord and tenant, and the initial "understanding" ( as OP describes the first meeting of the minds years ago) was also a result of their relationship as landlord and tenant, -even though of short duration back thenm their landlord tenant relationship was the reason for the owner promising a future discount on price