Anyone who sells or buys residential property should know the difference between a contract addendum and an amendment. Many people mistakenly use these terms interchangeably, but they serve different purposes and could cause problems during an actual transaction if misused.
Knowing the differences between the two can empower you to handle residential property transactions more effectively.
A real estate contract addendum adds new information to the original agreement or contract. An addendum does not alter the original terms in any way.
On the other hand, a purchase agreement amendment modifies the original contract’s terms in some way. Many other differences are essential to know and understand.
What Is a Contract Addendum?
A contract addendum is a legal document that attaches to the original agreement. It contains additions to the contract that were not a part of the original agreement.
The additions do not replace any of the terms in the original agreement. Instead, the addendum is a separate document that adds new terms or information that the parties agree to after the initial agreement.
What does an addendum to a contract look like?
An addendum to a contract is a separate document. It has its headings and a signature block to legally bind the parties to the addendum. It may be attached to the original contract or filed separately.
Does an addendum supersede a contract?
No, an addendum does not change any of the original contract’s terms and only provides new or supplementary information.
How do you add an addendum to a contract?
To add an addendum to a contract, you should add a document that:
- Creates a title that connects the addendum to the original purchase agreement and refers to the original purchase agreement by its full name/title and that this document is an addendum to that agreement
- Establishes the contract parties
- Identifies the effective date
- Establishes any related terms or contract sections that affect the original agreement
What Is a Contract Amendment?
Amendments are changes to the original contract — they are not additional documents.
An amendment may occur if the parties agree to:
- Change or alter a term in the original contract
- Replace or add a term or terms in the original document
- Delete a term or terms from the original contract
An amendment leaves the original contract primarily in place except for the specific details that the parties agree to alter. Amendments do not replace the entire agreement.
Differences Between a Contract Addendum and an Amendment in Real Estate
There are several key differences between a contract addendum and an amendment that may affect your real estate transaction:
How They Affect the Contract
An addendum provides new or supplementary information to the original agreement. It does not negate the original agreement’s terms.
It is a separate document added to the original contract.
An amendment changes the terms within the original document. It can do this informally as redlines, or strikethroughs, or as formally as a separate amendment document.
Which Parties Are Authorized To Execute Them
Any party may propose an addendum. This could include third parties like title companies who were not a part of the original purchase agreement.
On the other hand, only the parties to the original purchase agreement can make an amendment.
How Frequently Do Buyers and Sellers Use Them?
Multiple addendums can be attached to an existing contract as needed. This eliminates the need to re-draft the original contract and makes it easier to carry out than an amendment.
Purpose of the Document
An addendum is best when the parties want to add something to the original purchase agreement without modifying or renegotiating it.
An amendment clarifies the original contract — often to fix an error.
Reasons for Using Addendums vs. Amendments
The reasons that parties may use an addendum versus an amendment also differ significantly.
Parties may use addendums for purposes such as:
- Disclosures – The addendum may state that the seller will provide certain records like tax, property, or environmental hazard disclosures. This can protect a buyer against unforeseen issues with real estate.
- Contingencies – You may add a contingency like a home inspection, title contingency, or financing guarantee after finalizing the original terms.
- HOA Documents – The homeowners association may add an addendum to outline its terms and regulations. This lays out the expectations for the buyer.
Reasons to use amendments include:
- The price of the home changes
- The property requires repairs
- The closing date must change
- The buyer’s financing changes for some reason
- You must correct an error in the original agreement
LegalTemplates can help you get the purchase agreement addendum you need to properly handle residential real estate transactions. Download a sample form or use our step-by-step builder to create an addendum.
