What is an addendum in real estate?
An addendum is an additional document that is attached to your purchase contract.
It plays an important role in clarifying and/or modifying an agreement’s initial terms and conditions.
How does an addendum work?
An addendum allows you to change the terms of a contract before it is signed by you and the seller and can include contingencies, such as home inspections, certain furniture items, and more.
Let’s say you’re buying a house and want to make sure that the seller will cover changes you want to see before moving in — for example, installing a new roof, or something that falls outside of (in addition to) the original contract.
You can add a contract addendum to your offer on the home requesting this condition be met.
The seller can then choose to accept or reject this condition before signing the contract.
If they accept it, the addendum becomes part of the original purchase and sale agreement and must be submitted with the original document.
What are the most common types of addendums in real estate?
Contingencies are the conditions that must be met before the deal can close.
You might request the seller to repair work around the property (like our roof example) before closing the sale; or, if you envisage a sale contingency, you can back out of the deal if unable to sell your current home.
Seller financing can significantly simplify your financial life if you’re not qualified for a mortgage from a traditional lender or want to avoid paying certain closing costs.
With the seller providing you with a loan to purchase the property instead of obtaining a loan through a lender, you make payments directly to the seller.
Ashort sale addendumcan become a lifeline for your finances in a potential case when you buy a property and later find yourself struggling to pay the mortgage payments.
In order to avoid foreclosure, you will instead take advantage of the short sale addendum — sell your property at its current lower market price, and give the sum back to the lender while withdrawing from mortgage obligations.
The lender will then decide to “write off” the remaining balance or hold you accountable for paying it back.
A lead-based paint disclosure can be a useful contract addendum if you’re buying a home built decades ago. This addendum requires the seller to disclose any known lead-based paint hazards in your would-be home.
Similarly, environmental hazard disclosures require sellers to disclose any known environmental hazards on the property, including but not limited to lead paint, asbestos, or mold.
An extension of the closing date allows both parties to agree to extend the deadline for closing on the property.
This can happen when either you or the seller need more time to complete the necessary paperwork, inspections, loan requests, or repairs before closing.
A purchase-agreement termination clause allows both you and the seller to terminate the contract if one party fails to meet certain obligations.
For example, you may refer to this addendum and terminate the contract because of inspection contingencies or if the seller avoids tax disclosures.
Alternatively, if you fail to pay the earnest money deposit or are unable to obtain the necessary financing, the seller can void the contract.
What is the difference between addendum versus amendment?
With their pronunciation sounding similar, distinguishing between addendum versus amendment in real estate can seem confusing.
Alongside consulting with your real estate agent (who should always be willing to assist you), see the table below explaining the differences between these two.
| Addendum | Amendment |
|---|---|
| You tack this document onto the original agreement, which includes additional terms and information before the contract is signed. | You use amendments when you need a formal change or modification to the original terms of a contract after it has been signed. |
| It allows you to add additional nuances without altering the existing content. | It helps you modify, add, or remove specific terms or conditions in the existing contract. |
| It is a separate document attached to the purchase contract. | The contract amendment can be a separate doc or it can be a modification within the original contract document. |
| Addendums are typically made before both parties sign a contract. Like amendments, all parties have to sign an addendum to make it valid. | Amendments are typically made after both parties sign a contract. Like addendums, all parties have to sign an amendment to make it valid. |
How do I create an addendum to my original contract?
The process is straightforward. Check these shortcuts on how to write an addendum in real estate:
- Use a simple template or create a document from scratch and give your addendum a title that clearly describes its purpose.
- Begin with a brief introduction when you mention all parties involved and the contract you wish to supplement with this addendum.
- Clearly state the purpose of the addendum, such as adding or modifying terms, conditions, or provisions to the original contract.
- Provide a detailed description of the changes you wish to make. Be specific and include any relevant dates, amounts, or other additional information.
- Leave space at the end of the document for all parties to sign it, for example, using a handy e-signature feature, and date it.
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To confidently navigate the flow of real estate transactions, you need to have a good grasp on contract tweaks, with addendums playing a key role.
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