An Arms-Length Transaction is real estate jargon for standard sale. The property owner has final decision making power and these deals typically close in 30-45 days. Examples of other types of sales include: Auction, Probate, Short Sale, Bank owned, and off the market sales.
In Arms-Length Transaction both parties in a transaction came together freely, and willing, to determined an acceptable price. The arms length transaction sale price becomes an indication of the fair market value of the property at that particular time.
When you are using the comparable sales method to determine the value of a property, you must take into consideration the type of sale of the comps. Distress sales should be adjusted for their discounted price- in a short sale for example, they can take anywhere from 3 to 8 months to close and a 5% to 10% adjustment upwards for the inconvenience factor is appropriate.
An example of a sale that would not be an arms-length transaction is the sale of a property to a family member, or relative.