Q: What are the guidelines of ona’ah?

A: The Torah commands: “When you sell to your fellow or purchase from the hand of your fellow, do not aggrieve one another” (Vayikra 25:14). Sellers and buyers are admonished not to deceive or cheat the other party of a fair market price. If an item was overpriced, the buyer can claim ona’ah; if an item was underpriced, the seller can claim ona’ah (C.M. 227:1). Chazal determined that ona’ah is calculated by a price differential of 1/6. If the differential was less than 1/6, we presume that the aggrieved party was mochel and has no claim. If the differential was 1/6, the sale remains valid, but the differential must be refunded or paid. If the differential was greater than 1/6, the aggrieved party can invalidate the sale. The 1/6 is measured both in respect to the fair market price and the price paid. Thus, if an item typically costs $60, the buyer is entitled to a refund of his overpayment whether he paid $70 (1/6 of the value) or $72 (1/6 of the price paid). The seller is entitled to additional payment whether the item was bought for $50 (1/6 of the value) or $51.43 (1/6 of the price). If the price gap was less than this, there is no claim of ona’ah; more than this, the sale can be invalidated (227:2-4).

Q: How is the “fair market price” determined?

A: One way is through the imposition of a set price through government regulation. This exists sometimes with food staples, such as bread, or with various utility or transportation tariffs. The other way is through the free market forces of supply and demand.

When there is a single, set price, there is ona’ah (unfair value) when deviating from this price. The generally accepted opinion is that for a set price there is ona’ah even for a minimal price deviation, because there is no room there for price differences (Aruch Hashulchan 227:2, but see Machaneh Ephraim, Ona’ah #7). Therefore, if the government raised or lowered prices, and one party was unaware and bought or sold at the old price, the hurt party can claim ona’ah to receive the difference or revoke the sale, depending on the degree of deviation.

In a few free markets, the market forces also lead to a single fixed market price, such as for precious metals. The above rules apply there, too. Usually, though, there is a range of prices within the market and a different set of rules applies and is the subject of next week’s column.

Q: How is the “fair market price” determined in a free market?

A: Prices in a free market are driven mainly by supply and demand. In some markets, the forces of supply and demand lead towards a narrow price range or even to a single price, and it is relatively easy to ascertain a fair market value and hence determine the price differential between the price paid and the fair market value. In our typical commercial setting, however, the market is wide and there are often significant price differences between stores selling the same item. Any price that the majority of sellers would consider a marketable price – one that can still conform to the commercial rules of supply and demand – would be considered a fair market price, even if this seller is the only one to charge such a price. Therefore, most prices charged by stores would still be considered fair market value (Hilchos Mishpat 227).

Ona’ah would apply nowadays if a storeowner overcharged an unsuspecting customer a price that is not marketable, or in a private sale where one of the parties was unaware of the going market price (ibid).

Q: I rented a house for $6,000/month. I later realized that I was swindled and comparable rentals in the area are worth about $4,000/month. Can I claim ona’ah and demand a refund or annul the rental?

A: The rules of ona’ah apply not only to sales, but also to rentals, since rentals are considered a “sale” for that day or month. However, the Gemara (B.M. 56a,b) derives from verses that the rules of ona’ah apply only to movable items that have intrinsic value. This excludes real estate, which is not movable; slaves, which are juxtaposed to real estate; and loan documents, which serve as proof but do not have intrinsic value. Therefore, since the house is real estate, you cannot claim ona’ah on the house rental (227:29).

If the price differential reaches double the actual worth (i.e. if comparable houses go for $3,000/month), the Rama rules that there is an ona’ah claim (See SM”A 227:49).

Although the Gemara excludes real estate, slaves, and loan documents from claiming ona’ah, many Rishonim maintain that there still exists a prohibition against knowingly swindling the other party who is unaware of the going rate (see SM”A 227:51 and Pischei Teshuva 227:21).

Q: A car mechanic charged me rates way higher than other mechanics in his area. Can I claim ona’ah and demand a refund?

A: The Shulchan Aruch differentiates between a po’el, an employee who is time-bound and paid by the hour or day, and a kablan, an independent, contracted worker who charges a flat rate for the job.

We learned last week that there is no ona’ah on the sale of slaves. Although there is no slave market nowadays, the exclusion of people from ona’ah remains relevant for time-based workers. Thus, even if the price-per-hour varies significantly from the going rate, neither the worker nor the employer can claim ona’ah (C. M. 227:33), at least for a deviation of half the going rate (C.M. 227:29).

However, if the worker is an independent worker who charges a flat fee for a job, the Shulchan Aruch rules that ona’ah applies if his price veers significantly from the average range. This is because such a worker is not bound by time and not comparable to a slave, whose time is bound. If the worker charges extra because he is highly qualified and provides a superior service to other professionals, then there would be no ona’ah (227:36).

Q: I sold a work of art to a collector for $50,000 and found out later that I could have easily sold it for $75,000. Can I claim ona’ah and revoke the sale because of the unfair price?

A: Collector’s items, such as works of art, usually do not have a definable market. The regular rules of supply and demand do not apply here, but rather each person pays as he sees fit to evaluate the item. Therefore, such items are not included in the laws of ona’ah, because it is impossible to define a “fair market price” for them.

On the other hand, items that have catalogues with defined prices, such as stamps, would be included in ona’ah. The officially listed stamp value does not necessarily determine the actual “fair market value,” though, just as the “list price” of books does not necessarily reflect the actual “fair market value.” Nonetheless, the fact that the catalogue creates a definable market with a limited price range subjects stamps to the laws of ona’ah. Extremely rare stamps, however, would be similar to works of art and other collector items.