Explaining an Amendment of a Real Estate Contract
Along the way to closing, there can be bumps in the road.
When a real estate purchase agreement or contract is executed, and the terms are accepted by both parties, it is a complete and binding document. Should it become necessary to change any aspect of the previously agreed-to terms, an amendment is prepared. It is a document that makes a change to the ratified contract.
Real estate agents need to be sure not to confuse this with an Addendum.
Amendments to Real Estate Contracts
Everybody is usually pretty happy when the buyer and seller sign that purchase offer contract. The price is sealed, and it's on its way to closing. The agent is thinking about the commission. The buyers are visualizing their furniture in the home. The seller is counting their money. But, it's not a done deal until that closing is completed and it's funded.
Example: A buyer and seller agree on the purchase of a piece of property, and the contract is signed by all parties. Later, the closing date needs to be moved out to allow for a delayed survey. It would require that the closing date in the original agreement be amended.
Along the way to closing, there can be bumps in the road. Some may be relatively minor, but others can be possible deal-killers.
- Appraisal: The appraiser comes in with a value below the agreed-upon selling price. It can be a big one. It can be a small amount, easily agreed for the seller to drop the price or for the buyer to up their down payment to get the loan amount in line. If it's a significant amount, then another negotiation takes place. If it's resolved, the amendment must be executed and signed that adjusts the terms of the contract accordingly.
- Loan type: Suppose the buyer had planned on purchasing the home with a conventional mortgage while putting 20% down. Now, they find that they can get an FHA loan with a lower down payment, or at least they're pretty sure they can. It's going to take longer as well. The amendment, in this case, can cover the two points, the change in loan type and extending the closing date out in time.
- Getting that hot tub: The portable hot tub wasn't included in the sale. However, in the process of negotiating repairs, the buyers are willing to overlook replacing some torn window screens and a few broken window panes, but they now want that hot tub. You guessed it, it's an amendment.
- Mortgage is not approved "as-is": Suppose the buyer had expected to get the home with 10% down, but the lender checked all of the credit and income/expense numbers and decided that they couldn't qualify the buyer for that loan. The buyers need to come up with more for a down payment. They may have it or are able to get it, but it will take time. Another case for an amendment extending closing.
- Abandoned fence encroaches: This is a real one, as I had this happen to me as a buyer in a rural area, for example. The survey turned up an old fence that was pretty much fallen down, but it was mentioned and thus became an exception to coverage in the title insurance binder. It wasn't a huge deal, as I could remove it later, and then it wouldn't show up when I sold at some point. However, I didn't want some claim to that sliver of land to show up later either. So, we did an amendment, and the seller had it removed before closing, and it was removed from the binder exceptions.
The point here is that it isn't a deal until it closes and funds. There can be a number of things that come up in the transaction process that requires changing the terms of the agreement between buyer and seller. Usually, it gets handled, but remember those amendments.