I say maybe, if they are not an uncommon occurrence in the market and sold through the MLS with competitive marketing time. I usually find, not surprisingly, that the REO trends toward the lower end of the market but it is an informed seller and informed buyer each working in their own self interest. Here in NJ the REO sale is often preceded by a Sheriff Sale of the asset to foreclose the bond of mortgage and that Sheriff Sale does not in my opinion qualify as an arms-length transaction. Hope that helps.
This is a topic that seems universally confusing. My brother finally identified from where the confusion originates. Non arms length just means related parties . A related party can be family or even landlord/ tenant.
Market value is based on exposure in the open market. REO is not a market transaction but it is arms length.
Where the confusion comes from is public records. They record REO as no arms length. And that systematic mistake is rife throughout much of the country.
There are 2 sources that I turn to when discussing this topic. One is “The Dictionary of R.E. Estate Appraisal”, 5th ed. (I believe that there is now a 6th, but, I have the 5th), Appraisal Institute. There “ALT” is defined as “A transaction between unrelated parties who are each acting in his or her own best interest.” Giving “flesh” to this, I highly recommend an article authored by Richard Heyn, SRA: https://www.aciweb.com/arms-length-transactions-market-value-and-related-parties/
As to the question at hand, by the fact alone that a property is REO, the status is irrelevant to answering the question as it is the relationship between the parties that matters.