What term describes a transaction where each party acts in their own best interest?

An arms-length transaction refers to a deal in which the buyers and sellers act independently and have no relationship to each other. This is important because it ensures that both parties are negotiating strictly based on their interests and strategic objectives, without any influence or pressure from one another. Such transactions are essential in real estate and finance as they help to determine fair market value and maintain fairness throughout the negotiation process.

In an arms-length transaction, the absence of a relationship mitigates the risk of bias or undue influence, promoting trust and transparency. This concept is particularly relevant in the context of mortgage lending, where ensuring that both parties are acting out of their own interests can lead to more equitable loan terms and pricing.