Sue
Kary is correct in that appraisers should call the listing agent to ask if there were any concessions to
the sale (credits to buyer for repairs or closing costs), how long the property was on the market and
if there was more than one offer on the property. You are correct is the greatest weight is given to an arm's length (listed on the MLS, not a sale between relatives) transaction. This, then, gives a more realistic value of the property.
Mary

Here's another good example. A couple of years ago I looked at a property for a bankruptcy trustee. The debtor had bought it within about 18-24 months earlier, and that was at a time where prices should have increased at least 10% since the time they bought. But I found the house wasn't worth what they paid for it. I also found that the property had been listed for a much lower price for several months before the sale and didn't sell.

Apparently the owner took the listing FSBO and found someone without an agent willing to pay much more than what the property was worth.

Anyway, appraisers have access to MLS data, and they could easily see the listing history on the property and not include that sale as a comp due to the suspect price.

Legal? Zillow can do whatever it wants.

It is typical to exclude transactions if it's not thought that the transaction was an arms length transaction, or otherwise suspect.

Case Shiller, which just released its results for October today excludes all sorts of transactions. I occasionally get telephone calls from appraisers with questions about a past sale. Sales between family members (including even divorcing spouses) are always suspect.