An addendum adds something to an existing document (such as a contract) before it is signed. Most real estate contracts include at least one addendum. Read on to learn everything you need to know before signing one.
Disclaimer: These are legal documents. If you don’t fully understand the concept or simply have questions, you should contact an attorney. Anything listed in this article is for informational purposes only.
What Is an Addendum?
An addendum by itself is not a contract. It clarifies, modifies, adds additional terms, or otherwise supports information in an existing contract. They often appear as part of a real estate contract, lease, or purchase agreement. Real estate closings also feature them.
A contract may also have several other kinds of documents, but we’ll speak more on that in a minute. Sometimes the plural form of addendum appears as “addenda,” but using the word “addendums” is also grammatically correct.
Understanding an Addendum
Since an addendum is a legal document, some specific requirements come into play. One is that a contract addendum has to be written out. An oral addition to a legal contract is not an addendum. An addendum may include any of the following elements:
Once added and signed, it becomes part of the original contract. The addendum then is legally binding, just like the rest of the contract.
The addendum could modify some term spelled out in the main document. An addendum may, for instance, give a later date when the seller can move in to a residential property.
The addendum could also add a new contingency. For example, an addendum may call for terminating the deal if the lender’s appraisal is too low.
An addendum could also clarify something in the document. For example, an addendum may spell out details of a mandatory home owner’s association membership.
The addendum may also nullify an existing term of the contract. Say a landlord agrees to let a specific tenant have a pet. A pet addendum could nullify the standard lease language that prohibits pets in the residence.
Sometimes an addendum is purely informational. For example, the lead-paint disclosure addendum. Sometimes the law requires an addendum. For instance, federal law requires that seller’s lead-based paint disclosure on a home sale contract.
All Parties’ Signatures
Both buyers and sellers often have to sign an addendum to make it valid. It may also require witnesses to the signatures. These provisions keep one party from slipping in a contract change without the other knowing.
An addendum can save lots of time and energy. Say you’ve sent an offer on a property to the seller and one party wants a change. You can add it with an addendum without having to rewrite the entire offer.
Real Estate Uses for Addendums
An addendum can inform, change, or clarify real estate contracts in many ways. To give you an idea, the Texas Real Estate Commission supplies the following standard addendum forms:
- Concerning Right to Terminate Due to Lender’s Appraisal
- Back-Up Contract
- Authorizing Hydrostatic Testing
- Coastal Area Property
- Property Located Seaward of the Gulf Intercoastal Waterway
- Subject to Mandatory Membership in a Property Owners Association
- Property in a Propane Gas System Service Area
- Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement
- Reservation of Oil, Gas and Other Minerals
- Sale of Other Property by Buyer
- Seller’s Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards as Required by Federal Law
- Buyer’s Temporary Residential Lease
- Environmental Assessment, Threatened or Endangered Species, and Wetlands
- Loan Assumption
- Non-Realty Items
- Seller Financing
- Seller’s Temporary Residential Lease
- Short Sale
- Third Party Financing
An addendum can also surface in other business, legal and finance situations. For example, an addendum to a will may cover an issue that arose after the will got drafted.
Many times, a will addendum clarifies who gets a particular item from the estate. Dispositions of homes, coin collections, artwork, furniture and automobiles often feature in a will’s addendum.
A non-real-estate sales contract also could have an addendum or two. If you want to change payment terms or delivery date on something you bought, an addendum can do it.
Addendums vs Other Documents
An addendum is just one of several document types that could be attached to a contract. Here are a few documents that are commonly mistaken for an addendum:
Amendments sometimes get confused with addendums. These are added to contracts that are already signed. An addendum is added before the contract is signed.
Appendixes add supporting information without changing the original document. One common example is a bank statement showing the buyer has the funds for an all-cash deal.
Annexes are purely informational additions. Often, they are tables such as tax tables. Exhibits can be standard forms describing a signer’s obligations under the contract. Real estate contacts often have attached an exhibit giving the legal description of a property.
Riders often show up on insurance policies. They add some condition to a standard contract. For example, a homeowner may want a rider stating that the coverage will include an art collection.
So, What Is an Addendum?
You won’t have to look at many real estate contracts before encountering your first addendum. You can use addendums to clarify, expand, nullify, or change contract terms. And you won’t have to rewrite the entire contract to make these changes.
An addendum can save valuable time and energy as a real estate deal travels the path to completion. Making wise use of addendums can smooth out many real estate activities, and having a good grip on what they are used for can be a big help.