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Statute of Frauds Does Not Apply to Commission Promised to Real Estate Broker for Unbuilt Home
Description A builder made an oral promise to a real estate broker to pay a commission for a custom home that was to be built for a client. The commission was not paid. The Virginia high court held that the statute of frauds did not apply, so the commission had to be paid, because an unbuilt home is not yet real estate.
Topic Contracts
Key Words Oral Promise; Statute of Frauds
C A S E   S U M M A R Y
Facts Pardoe, a real estate brokerage firm, sued Schulz, a home builder, alleging that Schulz owed Pardoe a commission on the sale of a custom home in the LM subdivision. Schulz had signed an agreement with the LM developer that stated that Schulz would pay Pardoe a 6% commission on the sale of any speculative home that Schulz built. Later, the developer showed Schulz an amendment to the contract that builders would pay a 2.5% commission to Pardoe when they built a custom home on a lot already owned by the home buyer. Schulz did not sign that amendment. The Carltons owned a lot at LM. They hired Schulz to build their home. When the construction papers were signed, Pardoe testified that Schulz said he would pay a 2.5% commission, but did not sign an agreement. The trial court held that Pardoe's testimony was accepted, but the deal was subject to the statute of frauds. Since it was not in writing, the judge held for Schulz. Pardoe appealed.
Decision Reversed. The statute of frauds covers a contract for the sale of real estate. Real estate does not include a building that is unattached to land. Since construction of the Carlton home had not begun at the time of the oral contract between Pardoe and Schulz, the home was not included in the definition of real estate under Virginia law. "An oral contract providing for a sales commission is not subject to the statute of frauds when that contract is based on the sale of a house to be affixed to land that does not include a contemporaneous sale of the land to which the house will be attached." In general, contracts to build buildings on land are not within the statute of frauds, but when the structures have been built, they will become real estate.
Citation Pardoe & Graham Real Estate, Inc. v. Schulz Home Corp., 525 S.E.2d 284 (Sup. Ct., Va., 2000)

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