If you're buying or selling a piece of real estate, you may be asked to sign an amendment or addendum or two along the way. While both mean a change to your overall agreement with the other party, there are some key differences in how the two work -- and specifically, what they mean for the original contract.
It's important to understand how these two documents differ before signing on that dotted line.
What is a contract addendum?
A contract addendum adds something to the original purchase agreement. It's a separate document that, once signed, becomes a part of the agreed-upon sales contract -- essentially just another page of it.
Addendums can be created by anyone involved in the transaction, including the buyer, seller, title company, etc. For it to be legally binding, both parties need to sign the addendum document, and a note should be added to the original contract (above the original signatures) stating "This document is invalid without Addendum A," (B, C, etc.).
Here are a few common examples of addendums as they pertain to real estate transactions:
- Inspection contingencies, affording the buyer the right to a third-party inspection (home, pest, septic, etc.) prior to closing.
- Sale contingencies, which allow the buyer to back out if they're unable to sell their existing property.
- Financing-related addendums, including those regarding loan assumptions, mortgage approvals, and more.
- Disclosures, including property condition disclosures, tax disclosures, environmental hazard disclosures, and more.
- HOA documents, detailing the rules and regulations of the local homeowners association.
- Non-realty item addenda, which states what personal property the seller has agreed to leave for the buyer (appliances, fixtures, window coverings, etc.).
- Back-up contract addenda, which state that the contract only goes into effect if the seller's current contract falls through.
- Buyer additions, if the original buyer wants to add their spouse or partner to the contract.
Contract addendums may also be used in rental situations. If a landlord or tenant wants to add something to their lease later on -- like, perhaps, a pet agreement or a new roommate, these could be agreed upon and finalized using an addendum.
What is a contract amendment?
A contract amendment is a document that modifies the original purchase agreement. It either corrects something on that initial contract or clarifies it with additional information or detail.
Amendments can only be proposed by the signing parties (or their representatives/agents). If an amendment is made via a separate document, the changes to the original contract will need to be spelled out in detail, including what original clauses and portions are being changed and what new text will replace them.
An amendment can also be made by redlining and changing text directly in the original contract. Regardless of how the amendments are approached, both parties must sign and agree to the changes in writing.
Here are some scenarios when you might need an amendment in real estate:
- The sale price is changing.
- You're requesting repairs or repair credits.
- There's a title or appraisal issue.
- There's a new closing date.
- The type of financing is changing.
As with an addendum, you might also use an amendment as a landlord or renter. This may come into play if you need to change your lease's termination date or other terms of your contract.
The key differences between an amendment and an addendum
Both amendments and addenda are issued after the original contract has been signed, and both documents aim to modify or further clarify the agreement between two parties.
The differences lie in what those documents mean for the initial contract, as well as who can make the changes and how. Here's a quick breakdown of how the two differ: