Both an addendum and amendment modify critical details on an existing contract (like a land contract or purchase agreement)
Although frequently misused or forgotten about, these are critical contract elements that you should learn to use correctly.
Here’s everything you need to know about these two types of contract attachments and their differences.
Let’s get started.
1. What is an addendum?
A contract addendum is an attachment made to an initial contract.
It details any additions that should be included as part of the contract.
It typically contains items that were not included when the contract was being drafted.
Addenda are modifications that are added to an existing agreement to add or change a few of its terms or conditions.
It does not replace the original contract.
It merely adds information that the parties have agreed to after the contract terms have been set.
2. What is an amendment?
A contract amendment allows parties to make a mutually agreed-upon change to an existing contract.
It can be added to an existing contract, deleted from an existing contract, or changed from an existing contract.
While the original contract remains in place, only some terms will be altered by way of the amendment.
However, not all changes made to a contract are amendments.
You’ll make plenty of changes while negotiating a contract.
These are not amendments because there is no existing contract in place, and therefore there is nothing to amend yet.
As such, when you make changes before there is a contract in place, you’re simply negotiating the terms of the original contract.
3. What’s the difference between an amendment and an addendum?
An amendment changes the terms of the actual contract while an addendum keeps all the original contract terms in place and adds additional ones.
Here’s a simple example.
You have a purchase agreement with a seller to close on a property in three weeks.
Amendment: You push the closing date back a week.
Addendum: You add your spouse to the purchase agreement.
All the other information about the sale stays the same.
The chart below can also help clarify how the two differ:
|Purpose||Adds something to the original contract||Modifies or clarifies the original contract|
|Who can make them||Any party, including third parties like title companies, etc.||Only the signing parties or their real estate agent|
|How it’s done||By adding an additional document to the original contract||By redlining the original contract or adding an additional document|
4. When should you use each of them?
When to use an addendum?
A contract addendum is an attachment to an original contract that details additions that will be included as part of the contract.
An addendum usually contains items that were not included when the contract was initially drafted.
These are modifications added to an existing agreement to add or change a few of its terms and conditions.
Addendums do not replace an original contract.
You can use an addendum to add additional information that the parties have agreed to after a contract is already in place.
In real estate, an addendum may be used to add a spouse as a co-owner to a purchase agreement.
When to use an amendment?
Similar to an addendum, an amendment attaches to the initial contract and alters the original terms or conditions.
It does not replace the specified portion of the original contract.
You should use an amendment to change details in the original contract after it is executed by both parties.
For example, when both parties agree to extend the terms of the agreement, then it would be appropriate to use an amendment.
5. What is a Residential Purchase Agreement?
Both addendums and amendments are used in a contract known as the Residential Purchase Agreement.
This real estate contract is used to create a legally binding agreement between the buyer and the seller.
In the RPA, all the terms, conditions, and stipulations are agreed upon by the parties in the transactions.
Sometimes the terms may need to be changed or modified, and that’s where addendums and amendments come in.
What are examples of addendums in RPAs?
When writing an addendum in a real estate contract, it’s important to get specific and clearly outline what the buyer wants.
For example, writing “Buyer wants all the real property in the home,” is too vague and could cause potential issues in how this is perceived on either end.
Instead, you’d want to opt for the following language (as it pertains to what is desired).
- Sofa in the living room to stay
- Leather chair excluded from living room furniture
- Table with all four chairs to remain in the kitchen
- All bedroom furniture to remain at the close of escrow
- 2 nightstands
- 2 dresser drawers
- Rocking chair
This language clearly outlines what the buyer is requesting from the seller, and it leaves no doubt as to what parties should do to fulfill the contract.
6. What are some common examples of addendums in real estate transactions?
Are you wondering how addendums specifically apply to real estate?
Here are some examples of where you may see them or need to use them.
This addendum affords the buyer the right to a third-party inspection (home, pest, septic, etc.) prior to closing.
This addendum allows the buyer to back out if they’re unable to sell their existing property.
This type of addendum includes those regarding mortgage approvals, loan assumptions, and more.
This addendum details the rules and regulations of the local homeowner’s association.
Non-reality item addenda:
This addendum states what personal property the seller has to leave for the buyer (appliances, fixtures, window coverings, etc.)
Back-up contract addenda:
This addendum states that the contract only goes into effect if the seller’s current contract falls through.
This addendum allows the original buyer to add their spouse or partner to the contract.
Contract addendums may also be relevant in rental situations.
Sometimes landlords or tenants may want to add something onto their lease later on (in the event of a pet, new roommate, etc.).
These occurrences may also be agreed upon and finalized using an addendum.
7. What are some common examples of amendments in real estate transactions?
Are you trying to think of a situation as to when you may need an amendment in a real estate transaction?
These scenarios will give you an idea as to when they are relevant.
The sale price is changing
You’re requesting repairs or repair credits
There’s a new closing date for the property
The type of financing is changing
Just like with the addendums, you may also use these amendments as a landlord or renter.
If you need to change your lease’s termination date or other terms of your contract, you may use an amendment to do so.
8. How do you add an addendum?
Here’s how you can add an addendum if you’re looking to alter something in an existing contract.
Use a style and format consistent with the original contract:
The addendum should be stylistically similar to your original contract.
This means using the same font, size, and margins as your original document.
Create a title that clearly identifies the relationship with the original contract:
You need to demonstrate to the person reading the document how the attachment pertains to the original contract.
For example, “Addendum to January 15, 2020, Purchase and Sale Agreement.”
State the contract parties:
You should restate both parties as detailed in the original contract so that it is clear who is involved in this addendum.
Note the effective date of the addendum:
Be sure to note when the addendum is effective.
Identify the related terms and contract sections:
Which parts of the contract are impacted by the addendum?
What does this contract modify?
Make sure you highlight this in the addendum.
Include the signature block for both parties:
If possible, have the original signatories also execute the addendum, and include a notary block if the signatures must be notarized.
9. How do you add an amendment?
To add an amendment, you can use one of the three following methods:
Change the original contract by using redlines and strikethroughs to the text to show what is no longer relevant.
Additions can be indicated by underlining the text.
You can also precede the amended information with a clarifying statement about the amendment process and an indication of the section to be modified.
For example, “The parties agree to amend the Agreement by the following additions (indicated by underlining) and deletions (indicated by strikethroughs): Section 10 is amended to read as follows.”
Replace entirely paragraphs or clauses completely.
State which clause is being replaced and add the new clause that will replace it.
Describe the portion of the amendment being replaced.
For example, “The rate in the third sentence of the fourth paragraph is being modified from $120,000 to $140,000.”
10. What are the best practices for contract amendments?
When you’re creating a contract amendment, be sure to follow these tips for best results:
Always put a contract amendment in writing and make sure both parties sign and date it.
Written amendments have advantages over oral agreements because they can be enforced more easily.
Reference the title of the contract (if applicable), its original parties, and the original signing date.
This way, it’s clear what document you are amending.
Attach the amendment to the original contract so that it’s always easy to find.
Don’t make multiple amendments if you can avoid it.
If you’re going to have to amend previous amendments, consider writing a new contract.
This way, all terms will be clear.
Always restate the entire section or paragraph of the contract with the changes instead of trying to describe how you’re changing it.
This will make it clear what the governing language is.
Just because all parties agree to certain terms at the start of a contract doesn’t mean those terms are set in stone.
In any real estate transaction, negotiations, inspections, and title searches can all necessitate an amendment to the original contract.
Events like contingencies and disclosures can lead to an addendum.
Regardless of the situation you find yourself in, it’s important to understand how these documents impact your legally binding contract moving forward.
If at any point you’re unsure, be sure to contact a qualified real estate attorney to advise you.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.