"Fair Market Value" is important to define.

The pricing term, "fair market value" may seem obvious to some, especially when the will says that fair market value is determined at the time of the decedent's death, but Virginia Supreme Court says this is not so easily determined. 

Wilburn v. Mangano

In Wilburn v. Mangano, 851 S.E.2d 474 (Va. Sup. Ct. 2020), a woman had a valid will that left her home to her three daughters, but the will also provided for an option, to allow her son, within one year of her death, to purchase the home from the estate at the tax assessed value. Later, she amended her will that changed the purchase price from the tax assessment value to the “fair market value at the time of my death.” After mom's death, the son sent a notice to the daughters saying that he was exercising his option to purchase the home.  A dispute arose as to what the "fair market value" meant and the daughters hired appraisers to determine the fair market value.  One appraiser said the value of the property was $311,000, and the other appraiser said it was valued at $270,000.  The daughters offered to sell it for the higher amount.

The son decided he was no longer interested in purchasing the property and the daughters filed a complaint with the court to compel him to purchase the property based upon his notice of exercising the option. The circuit court held that there was no enforceable contract because "the will, codicil (amendment to a will), and notice of acceptance did not determine the purchase price and did not provide a method of determining the purchase price."  The sisters appealed.

Ultimately the case made its way to the Virginia Supreme Court who affirmed the lower circuit court's ruling that the term, "fair market value" at the was not specific enough in determining the price for the real estate under the option contract. Therefore, the son did not breach the contract and was not obligated to purchase the property. In Moorman v. Blackstock, Inc., 276 Va. 64, 75 (2008). In agreements, price is a material term, and for price to be enforced it must be “fixed by the agreement itself” or the agreement must provide a means “for ascertaining it with certainty." A court cannot enforce the pricing term without this in the agreement. 

The Virginia Supreme Court said, "Absent a more precise specification in Jeanne’s codicil regarding the particular approach to be applied to determine the Property’s fair market value as of Jeanne’s death, the codicil does not provide the price of the Property, or a means of ascertaining the price with certainty, without subsequent agreement between the parties. (Emphasis added). By its very nature, what is meant by the term fair market value—what a buyer is willing to accept and what a seller is willing to pay for something on a given day—cannot be known with certainty absent a more specific means for determining it being provided in the codicil. In this instance, the language in the codicil lacks the precision required to produce a 'certainty' as to price, which would allow a court to equitably compel a party to specifically perform a contract for the purchase of real property."

Bottom Line

It's important to remember that essential, material terms to an agreement must be defined with certainty -- ambiguity or vagueness will not work.  This case teaches that leaving essential terms undefined with specificity may cause problems later.  There are always options to define terms, even unknown future terms. One option would be simply to define the fair market value as the tax assessed value that is provided by the county or city where the real estate is located at the time of death, or it can be determined by third-party appraisers.  There are a variety of options that one can use to determine a future valuation of property.  It's important to take the time and careful consider the different approaches as well as thinking about potential consequences of the language of the terms. 

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