Thanks for the additional information. I will presume that you did not get the easement.
Here is your specific problem. You advertised that the property had a water utility. You cannot legally rely on a general disclaimer in the MLS listing to avoid the claim that there was public water available to the lot. The court will not uphold the flimsy MLS disclaimer when something as important as water is stated to be available, and yet is not.
The buyer will have the legal right to sue for breach of contract and failure to disclose. When you made the affirmative disclosure regarding the water, the buyer had the right to rely on that disclosure. You do have a defense though, and I will explain that below.
If you are sued, you could be forced to pay damages to the owner for the decrease in value to the property that is posed by the lack of public water, and the court could potentially set those damages at the cost of the installation of the well----unless you can show that they could have mitigated their damages by obtaining water in a less expensive way. I'm not sure how, or whether realistically is a way that, you would go about proving that.
However, the fact that the buyer told you to cease working for the easement, that he was going to put in a well, lead you to believe that he was not particularly interested in the public water, and led you to cease negotiations with the neighbor for the easement. That may be used by you as a defense to any claim the buyer might make for damages.
Additionally, if you disclosed the water supply in your statement of disclosure, then the law states sellers: Are not liable for any errors or omissions in the disclosure statement IF the owner had no "actual knowledge' about them, or if the owner reasonably' relied upon representations by public agencies or by other experts as noted above, and if the owner was not grossly negligent
in obtaining and transmitting the information. [55-521.A]
Additionally, you probably could have sued the neighbor for the easement based on having a necessity in order to access public water, if there was no other way to tap into the water supply.
So, what it appears is that while you have the facts to make a defense if you are sued, it is not a 100% guaranteed defense, and you could lose the case. Under the circumstances, as each of you stands the chance of losing such a suit, it might be better to try and negotiate a settlement based on your payment of part of the cost of the well. Because if you refuse, and you are sued, while you might win the case and owe nothing, you also could lose and ow the entire cost of the well.
I wish you the best in 2013.
I understand that you may be disappointed by the Answer you received, as it was not particularly favorable to your situation. Had I been able to provide an Answer which might have given you a successful legal outcome, it would have been my pleasure to do so.
You may reply back to me using the Reply to Expert link if you have additional questions.
Kindly take a moment to rate my service to you based on the understanding of the law I provided. Please understand that I have no control over the how the law impacts your particular situation.