What type of sale would typically not be considered an arms-length transaction?

An arms-length transaction refers to a deal made by two parties acting in their own self-interest and in a competitive environment, ensuring that both parties are looking to maximize their own benefits without any external pressures or relationships that could influence the terms of the sale.

In the case of a sale to a friend, the relationship between the buyer and seller can introduce emotions, personal considerations, and other influences that are not present in a typical arms-length transaction. Friends may negotiate terms that are more favorable than what might be expected in a market-driven sale, such as discounting the price due to the relationship, or they may overlook certain terms or conditions. This lack of objectivity fundamentally undermines the concept of an arms-length transaction, as the parties involved may not be acting solely based on economic factors.

On the other hand, sales between neighboring properties, family-owned business sales, and public auctions can all incorporate elements of arms-length transactions, where the buyers and sellers exist in a competitive marketplace, making decisions based predominantly on their financial interests rather than personal connections. While family dynamics in a business sale might complicate matters, the transaction may still adhere to pricing and terms consistent with market conditions, indicating a more arms-length nature compared to a personal relationship-focused sale.