A couple who "lost" $150,000 after a buyer pulled out of a deal to buy their million-dollar home have won their bid to sue him, five years after the sale fell through.

Matthew and Tracey Strack agreed to sell their $1.2 million property in the upmarket Dunedin suburb of Maori Hill on February 24, 2014.

That sale to David Grey was conditional on him obtaining both finance and a written builder's report by March 10.

But just two days after signing Grey cancelled the agreement because the property had retro-fitted insulation in its wall cavities.

Despite a building inspector identifying no concerns with the property, Grey believed the insulation could add moisture to the house.

"It later turned out that his concerns were ill-founded," a decision by the Court of Appeal, released this week, said.

Grey had wanted to borrow the entire purchase price from a bridging loan from selling his existing home. He made preliminary enquiries but no loan was ever obtained, the documents show.

The Stracks cancelled the agreement on March 3, later re-selling their property for $150,000 less than the agreed amount, prompting them to sue in order to recover the sum.

An earlier high court decision found Grey had breached the contract for failing to obtain a written report that met the agreement's requirements.

The couple disputed the judge's decision to award only nominal damages – just $100 – based on Grey's prospect of obtaining finance being so remote as to be negligible.

The Court of Appeal rejected that earlier judgment, concluding Grey would have not being able to get a valuation in time, or that his application to Westpac would have failed.

Evidence showed Grey signed the agreement believing he would get finance, approaching his bank manager, Craig Ross, for bridging finance pending sale of his Mosgiel property.

The court decision noted no loan application was ever prepared as Ross did not consider the financial information needed to recommend a loan to the bank's credit division.

Ross' evidence indicated that security cover would have been an issue because Grey was borrowing the full purchase price, but no evidence of the value of his home or business assets was shown.

The Court of Appeal found Grey failed to show that he would not have succeeded in raising finance.

He was ordered to pay the Stracks $150,000 – the difference between the contract price and the price realised on sale, as well as costs.