ALBANY, N.Y. (AP) -- Buyers who renege on a real estate contract owe damages to the sellers reflecting the fair market value when they backed out, which can differ from the contract price, New York's highest court ruled Thursday.
The Court of Appeals sent the dispute over the Finger Lakes property to a lower court to consider several factors in determining market value, including the property's eventual sale 18 months later for almost $350,000 less.
The case involved the signed sales contract in June 2005 for $1.725 million for the house on Skaneateles Lake. In July, the buyers sent a letter to terminate the contract, citing property drainage issues.
The sellers in an October letter said they'd resolved those issues and scheduled the closing, but the buyers had already bought elsewhere.
The sellers eventually got $1.376 million from the property in early 2007 from other buyers as the real estate market cooled off.
"The time-of-breach rule is longstanding in New York," Judge Susan Read wrote for the court majority. She rejected the sellers' argument for a new rule that damages for a buyer's contract breach should be the difference between the contract price and the eventual resale price.
The trial judge will need to consider whether the eventual resale price in 2007 reflected its fair market value in October 2005, whether the sellers made sufficient efforts to resell it at a reasonable price afterward, and the cost of fixing its drainage problems in establishing the fair market value, according to Read. Chief Judge Jonathan Lippman and Judges Victoria Graffeo and Jenny Rivera agreed.
In a concurring opinion, Judge Eugene Pigott Jr. wrote that there's no dispute that the buyers breached the contract, but he said the sellers should get the benefit of the original contract. In this case that would be almost $350,000, the difference between the contract price and the later resale, he wrote. Judge Robert Smith agreed.
"Any other measure is a fiction," Pigott wrote. "To flatly suggest, as the majority does, that the measure should be 'fair market value' at the time of the breach would almost always mean the actual contract price, for the simple reason that a willing seller and willing buyer had established that price at arms length."