If a sale is not arms-length, what is a potential effect on the appraisal?

• A. It changes zoning
• B. Price may reflect non-market motivations
• C. It will always undervalue the property
• D. It increases property tax

Answer: (B)

Non-arm’s-length transactions can carry motivations other than a true market exchange, such as related parties, family transfers, seller concessions, or distress conditions. In the appraisal process, these non-market factors can cause the sale price to diverge from what a competitive market would produce. Because of that, the appraiser treats such a sale with caution, often adjusting for those non-market influences or choosing not to rely on it as a representative market value indicator. The idea is that price in a non-arm’s-length deal may not reflect what buyers and sellers would actually pay under normal market conditions.

This doesn’t relate to zoning changes, which are governmental actions, and it doesn’t mean the property will always be undervalued—the price could be higher or lower than true market value depending on the non-market factors involved. It also doesn’t automatically change property taxes; tax assessments respond to market value over time, but a single non-arm’s-length sale doesn’t by itself determine tax billing.