Final answer:
A transaction may not be arm's length if the seller is not knowledgeable of the value, indicating asymmetric information leading to potential market inefficiencies and an unfair transaction.
Step-by-step explanation:
A transaction may not be considered arm's length if there is a situation where asymmetric information exists, especially if the seller was not knowledgeable of the value of the property. This implies that one party, in this case, the seller, has less information regarding the true value of what is being sold.
Typically, an arm's length transaction requires that both parties act in their self-interest and are well informed about the product's characteristics, including its value on the open market. In the context of market transactions, it is crucial for both buyers and sellers to have full information about a product's price and quality.
Asymmetric information can lead to difficulties in agreeing on a price because either party could be making decisions based on incomplete or inaccurate data, which can result in either the buyer overpaying or the seller under-pricing a property.