Definition of Arms-Length Transaction:

Arms-Length Transaction:

This is the common description of an agreement made between 2 parties freely and independently of each other, and without some special relationship, such as being a family member, having another deal on the side or one party having complete control of the other. It becomes important to determine if an agreement was freely entered into to show that the price, requirements, and other conditions were fair and real.

Here is a working example: If a brother sells property to his sister the value set may not be the true market value of the Orange County home since it may not have been an "arm's length" transaction (the brother and sister are just too close to each – relationship wise - to know if their agreement was real and factual). 

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