An Addendum to a Real Estate Contract
What is an addendum? 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. It can be explanatory, informational, or indicate other requirements 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 an addendum with an amendment, which is a modification to the terms of an already-accepted contract.
For example, 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. This could be added as an addendum to the purchase contract.
Examples of Addenda
Addenda are frequently used in real estate. Some are state-mandated disclosures, while others are specific to issues with the property being purchased. Some common addenda include:
- Inspections: Sometimes, inspections 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: Septic systems are common in rural areas. The septic addendum sets out the terms and deadlines related to the 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 the deadlines for that sale and what will happen if it doesn't happen by the deadline.
- Property condition disclosure: When required, the seller will complete a disclosure form about the condition of the property, disclosing all known defects. In some cases, this may include any major repairs the seller completed.
- Various mandated disclosures: These can include mold, asbestos, radon, lead-based paint, and others. They are typically instructive, explaining the issues covered and the buyer's rights.
- HOA: The Homeowners Association addenda could include information about the property's HOA, such as its rules and financial information. 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 New Mexico, 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 gets 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: 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.
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. In some cases, though an addendum may apply to a contract, it doesn't have to be used. This is common with disclosures.