What Is a Non-Arms Length Sale
A non-arms length sale is a property transaction between related parties, such as family members, business partners, or entities under common ownership, or a sale under duress or abnormal conditions that does not reflect fair market value. These sales are typically excluded from the comparable sales data that assessors use to determine property values for tax purposes.
Assessors distinguish non-arms length transactions because they involve motivations beyond typical market dynamics. A parent selling to a child at a discount, a forced liquidation due to financial distress, a sale between corporations with shared ownership, or a transaction with unusual financing terms all fall into this category. The price paid in these situations often bears little relationship to what an unrelated buyer would pay in an open market.
Why Assessors Exclude Them from Comparable Sales
Property tax assessments depend on comparable sales to establish market value. When an assessor includes non-arms length sales in their analysis, the assessment ratio,the relationship between assessed value and actual market value,becomes skewed. A property that sold to a family member for $250,000 when similar unrelated properties sold for $350,000 will produce artificially low assessment benchmarks if used as a comparable.
Most assessment jurisdictions require assessors to exclude non-arms length transactions when building their sales databases. This exclusion protects property owners from inflated assessments based on anomalous transactions while maintaining consistency in the assessment process. However, assessors don't always catch these transactions, or they may apply different standards for what qualifies as non-arms length.
How to Use This in Your Assessment Appeal
If your assessor used a non-arms length sale as a comparable in your property's valuation, you have strong grounds for appeal. At a board of review hearing, you can challenge the use of that comparable by:
- Documenting the relationship between buyer and seller using public records, deed information, or corporate filings
- Showing the sale occurred under duress, such as a foreclosure, bankruptcy, or estate liquidation
- Demonstrating that the sale price diverges significantly from other true market transactions for similar properties in the same area
- Submitting evidence of unusual financing, such as seller financing at below-market rates or gift components embedded in the purchase
- Presenting appraisal methods that rely on arms length comparables instead of the questionable sale
When preparing your case, request the assessor's sales database and review the comparable properties they selected. Look for evidence of family surnames, corporate parent-subsidiary relationships, or transaction dates that cluster around foreclosures or probate proceedings. These are red flags for non-arms length transactions.
Common Questions
- Does a non-arms length sale ever get used legitimately in assessment? Yes, but only when it's the only comparable available and adjusted for the non-market factors. Adjustments might reduce the sale price by 10 to 25 percent to reflect the relationship or special circumstances. However, pure market sales should always be preferred.
- What documentation proves a sale was non-arms length? Deed records showing matching addresses between buyer and seller, corporate documents linking entities, attorney letters regarding estate or probate status, and deed notation of "gift" all provide evidence. You can obtain most of this from county recorder offices or property tax records.
- Can I argue my own non-arms length situation to reduce my assessment? Not directly. Non-arms length designations protect the assessment process from skewed data, but you cannot claim your property sold non-arms length to lower your tax assessment. The current assessment is based on current market value regardless of how you acquired the property.