What does "Arms length, bona fide sale" refer to?

"Arms length, bona fide sale" refers to a transaction occurring in good faith between unrelated parties. This concept is crucial in the context of real estate and appraisals because it indicates that both buyer and seller are acting in their own self-interest and are not influenced by any relationship that could affect the terms of the sale.

In an arms-length sale, the parties negotiate freely and are expected to have access to all relevant information, leading to a fair market value being established. This condition is essential for appraisal purposes, as it helps ensure that the price paid is reflective of the current market conditions, thereby providing validity to the data used in the valuation process.

In contrast, a sale between friends or relatives may not accurately reflect the true market value due to potential emotional factors or informal agreements that could bias the pricing. Similarly, a transaction carried out with fraud or deception undermines the integrity of the sale, and a forced sale due to foreclosure is typically conducted under duress, often resulting in lower values. Thus, the ideal scenario for appraisers and market analysts involves transactions characterized as arms-length, bona fide sales.