Humber/Ontario Real Estate Course 4 Exam Practice

Why might a sale between family members not be a good market value indicator?

1. The price paid may not accurately reflect market value.

2. It is a transaction at arm's length.

3. The sale is legally invalid.

4. Family transactions always deviate from market value.

5. They are considered non-comparable due to legal restrictions.

6. Market conditions are different for family transactions.

The correct answer is: The price paid may not accurately reflect market value.

The reasoning behind why a sale between family members might not be a good market value indicator centers on the idea that the price paid in such transactions often does not accurately reflect the actual market value. Family members may agree to sell a property for a price that is significantly lower than what the property would command on the open market, primarily due to personal relationships and emotional factors influencing their agreement. This can result in a price that does not consider broader market dynamics, such as demand, location, or property condition that would affect a typical arm's-length transaction. In contrast, arm's-length transactions, which represent sales made between unrelated parties where both are acting in their own self-interest, serve as better indicators of market value since they reflect the prices real buyers are willing to pay based on market conditions. Therefore, while there are several factors that can affect family transactions, it's the discrepancy between agreed prices and market equivalents that is critical in determining why such sales may misrepresent market value.