An Addendum to a Real Estate Contract
Definition: An addendum to a real estate contract or purchase agreement is a document attached to and made a part of the original contract at the time it is prepared and submitted to the principals. It can be explanatory, informational or indicate other requirements of the parties that aren't clearly spelled out in the contract.
The key is that it is executed with, and a part of, the original contract. Sometimes agents confuse addendum with an amendment, which is a modification later to the terms of an already-accepted contract. It has surprised me how often experienced agents use the wrong term for a document. I may be overly sensitive, but I believe that professionalism demands better of us.
Examples: In an area where water rights are very important, a buyer might want to make it very clear that their offer on a piece of property is contingent on the verification of legal water rights for their proposed use of the property. This could be added as an addendum to the purchase contract.
Examples of Addenda
I have practiced in Texas, Colorado and New Mexico, and some version of these were used in all.
- Inspection - sometimes the inspection contingencies are covered in an addendum rather than in the body of the purchase contract. The deadlines for completion of the inspection of the property, delivery of the inspection report, and any negotiation resolutions related to the inspection will be covered.
- Septic - in rural areas septic systems are common. The septic addendum sets out the terms and deadlines related to inspection of the septic system, as well as who pays for corrections or that it will be negotiated.
- Water Well - if there is a well supplying water to the property, this addendum sets out the inspection contingencies, due dates and corrective action clauses.
- Sale of Another Property - if the buyer must sell another property to have the ability to close on the one in this contract, then this addendum would set out deadlines for that sale and what will happen if it doesn't happen by the deadline.
- Property Condition Disclosure - the seller when required will complete a disclosure form about the condition of the property, disclosing all known defects as well as any major repairs in the past in some cases.
- Various Mandated Disclosures - some of these may not be required, but it's good policy to provide them to buyers to cover liability for them not knowing something they should have known before sealing the deal. These can include mold, asbestos, radon, lead base paint and others. They are instructive, explaining the issues covered and the buyer's rights.
- HOA - The Homeowner Association addenda would set out the info about the HOA to which the property is subject, rules, financial information, etc. More likely, it will just identify the HOA and state a delivery deadline for the financial and rules restrictions documents to be delivered to the buyer(s).
- Property Tax Disclosure - In NM buyers were complaining about property tax surprises so this document came into existence. It is required, and the county fills in the current taxes for the property, and the buyer(s) get it as a disclosure item.
- Real Estate Contract Addendum - if this is a seller financed deal, this addendum is added to set out the terms for the seller's mortgage note to the buyer.
- Electronic Signature Addendum - this one sets out the portions of the various contract documents that will allow digital or electronic signatures.
- Hazards Addendum - this can be about known hazardous substances on the property, or possibly hazardous situations. An example would be a buried gasoline or oil tank that is no longer used but could be a pollutant.
- Blank Addendum - in NM, this one is the one that can get you in trouble for practicing law without a license. Writing up legal documents isn't the job of the real estate professional, which is why most of our documents have the language already there and we just fill in address and people details. However, on occasion I have used the blank addendum to spell out something simple that the buyer wants to make a contingency in the deal.
There are others, but these are common and show the broad subject matter covered in addenda. Often these are mandated forms that are simply attached to the original contract as a matter of course. In some states, there are many standard addenda available to agents. In some cases, though an addendum may apply to a contract, it doesn't have to be used. This is common with the disclosures. However, though it seems like a lot to hit your client with, the disclosures protect you as well as them.
There is something to be said for covering all of your bases, especially when it's relatively easy to pull out and attach the forms.