A Guide to Addendum and Amendment in Real Estate Contracts

In real estate, a contract addendum is an attachment to the original agreement that details additional terms that were not outlined in the original contract. These terms typically include things like contingencies, financing details, and disclosures about the state of the home. Anyone involved in the real estate transaction can add an addendum to the purchase agreement, including the seller, the buyer, or third-party professionals such as home inspectors or title companies.

An amendment to a real estate contract is a change to the terms of the original real estate sales contract. This can entail changes in terms, additions, or deletions from the original contract. Amendments allow home buyers and sellers to adjust key terms of an agreement (such as sales price or closing date) without needing to create a new contract. Both signing parties or their agents must agree to the proposed changes before executing an amendment to a contract.

An addendum and an amendment to a real estate contract are different because an addendum adds to the original terms of a contract, while an amendment modifies the contract’s terms. There are also a few other differences between an addendum and an amendment to a real estate contract.

1. 1. The way they affect a contract. An addendum provides supplementary information to an original contract, without negating its original terms. It is a separate document from the original contract. An amendment changes the existing terms of a contract to the new terms that are agreed upon by both parties. Instead of adding new contract terms, it replaces them.
2. 2. They are recorded differently. An addendum is added to the existing agreement as an additional document. An amendment makes a direct line change in the original document.
3. 3. Different parties execute them. A contract amendment must be executed by both signing parties or their real estate agents. An addendum can be made by anyone that is involved in the real estate transaction, including third parties such as title companies.
4. 4. They differ in frequency. If there is more than one amendment to an existing contract, the parties will typically re-draft the original agreement to reflect the most current terms. Repeated addendums can be attached to an existing contract without re-drafting it.

There are plenty of common scenarios that require real estate buyers or sellers to add addenda to their original contracts. Here are a few of those reasons.

1. 1. Contingencies: Contingencies like home inspections, financing guarantees, title contingencies, or sales contingencies may be added to a residential purchase agreement after its original terms are finalized. These are typically added to protect the buyer from losing earnest money in the event that the sales fall through for an agreed-upon reason.
2. 2. Disclosures: This addendum states that the seller will release records like property disclosures, tax disclosures, or environmental hazard disclosures to verify the condition of the home. This can protect the buyer by giving them advance notice of any unforeseen issues with the home.
3. 3. HOA documents: These documents outline the terms and regulations of the homeowner's association connected with the property. It clearly states the expectations and responsibilities of complying with the HOA’s terms and states the fees.

Amendments are typically used more sparingly than addenda, and they usually alter the fundamental terms of a residential purchase agreement. Here is an overview of some of the common reasons that a person would secure an amendment to their original real estate contract.

1. 1. The home sales price changes. If both parties agree to a new sale price for the property, an amendment will be made to the existing documents.
2. 2. The home needs repairs. This amendment will state if the seller is required to make repairs to the property, or if the buyer will receive repair credits off of the sale price.
3. 3. The closing date changes. Both parties can agree to a new closing date if the contingencies haven't been met by the original closing date. This requires an amendment to the original terms of the contract.
4. 4. A new party is added to the contract. An amendment is required to add a new party to the original contract, like a spouse, family member, or significant other.
5. 5. The buyer’s financing changes. If the buyer's financing changes, an amendment is required to reflect the change in financing.

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