Which scenario would raise concern that a sale is not arms-length?

• A. There is a mortgage at current market rate
• B. Appraisal fee is paid by the buyer
• C. The sale occurred with standard closing costs
• D. Seller is a relative of the buyer

Answer: (D)

In an arms-length sale, the buyers and sellers act independently, with no relationship that could influence price or terms. The transaction should reflect true market value, driven by open competition and normal negotiation.

When the seller is a relative of the buyer, that independence is compromised. Family ties can affect price, terms, or negotiations, leading to a sale price that doesn’t fully represent what unrelated buyers would pay. This raises concern because the transaction may not reflect pure market conditions, which is what the appraisal relies on for comparability.

Because of that potential bias, appraisers treat such related-party sales with caution. They look for additional, independent market data to confirm value or may note the relationship and explain how it could influence the price, often prioritizing comparable arms-length transactions over related-party deals when estimating market value.

The other scenarios—mortgage at market rate, appraisal fee paid by the buyer, and standard closing costs—do not inherently indicate a lack of arms-length behavior. They can occur in typical, independent transactions without suggesting a conflict of interest or price distortion.