Addendum vs Amendment: Everything You Need to Know
Understanding an addendum vs. amendment is important when you're drafting or signing a legal contract.3 min read
Updated November 25, 2020:
Understanding an addendum vs. amendment is important when you're drafting or signing a legal contract.
Real Estate Contract Law: Addendum or Amendment
Real estate brokers and agents often mix up addendums and amendments, using them incorrectly in legal contracts. Although both amendments and addendums can change the terms of the contract for a purchase of real estate, they should be used in different situations and for different actions.
For example, a real estate agent is drawing up a contract for clients that want to buy a home. These clients plan to purchase a house and use a portion of it for an office for their legal practice. When the agent submits the offer, the documents don't specify whether local ordinances allow for a legal office to be placed in the home. The agent might draft an addendum to the purchase agreement that states the sale is contingent upon approval to use a part of the home as a legal practice.
When you use an addendum to a real estate contract, you must make sure it is part of the original agreement that was submitted. If the seller accepts the offer, the addendum must also be part of the terms agreed upon by both parties.
Commonly used boilerplate contracts and contract laws vary between states. However, if the state laws allow for the use of addendums, which they typically do, real estate agents can use them for just about any purpose that relates to the clarification of the terms. These terms must be outlined in the original contract, and the addendum must serve to clarify on those terms. Both parties involved in the contract must agree to the terms outlined in the addendum.
Survey and Inspection
Another reason an agent might use an addendum is if the buyer wishes to have a full survey of the property, rather than using a standard solution provided by a title company, such as a report for improvement of the location. The buyer might choose to request this because of plans to make changes to the property that require a more extensive survey. By adding this request to the contract, the buyer could potentially get the cost of this process covered by the seller.
Addendums might also be used for special requirements regarding inspections and disclosure forms. When a property has a septic system, the state might require a disclosure to be included separately. In some cases, an addendum isn't a requirement but is suggested or available. An example would be consumer disclosures, which aren't necessarily required but can help provide additional information to a buyer or seller. By offering as much information as possible, an agent can help their client throughout the process of buying or selling a property, thus potentially reducing the risk.
Another example is if an agent has an accepted purchase agreement with signatures from all parties, but the survey shows a fence that is encroaching on the property line. Before closing, the buyers want the fence to be moved, to maintain the property and eliminate the issue. If this request is part of the purchase agreement, the agent must submit an amendment to the original purchase contract. Since the contract has already been accepted and signed by all parties, this change to the agreement would be presented as an amendment.
These situations often arise from inspections, and agents may use objection forms to handle them. After resolving the issue, the agent might use a resolution form. Although these forms aren't entitled as "amendments," they become amendments when they are included in the contract because they alter the agreements made in the original contract.
For example, during a septic inspection, the inspector reports that the leach field doesn't comply with regulations because it is too small. The buyer might object and ask the seller to increase the size of the leach field before the closing date. If the seller agrees to fix the leach field or negotiate a reduction in the property cost, this change would be a contract amendment because it changes the original contract terms.
Amending the terms of a contract is a common practice in real estate. Amendments often relate to:
- Condition of the property
- Title issues
- Correction of issues with the property
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