By Karen D. Friedman | 06.01.20 8:00 AM
Addendum vs amendment–what’s the difference? The addendum and amendment are two important terms related to the Residential Purchase Agreement (RPA) or contract in real estate. These are typically used when you need to add or modify terms or conditions that have already been agreed upon.
We will discuss what these terms mean and when to use them. They are similar but knowing the difference between an addendum vs amendment will help you to use them correctly.
The Residential Purchase Agreement
Let’s start with the contract also known as the Residential Purchase Agreement. The Residential Purchase Agreement is used to create a legally binding agreement between the buyer and the seller. Within the RPA are all the terms, conditions, and stipulations agreed upon by all parties in the transaction.
Occasionally, these terms may have to be changed or modified. Sometimes the negotiation of terms will continue even after you have a fully executed contract and have opened escrow. This is when the addendum and amendment come into play. Let’s get a little more detailed about what these terms mean and when you would use them.
Addendum in Real Estate
In some cases, you are adding conditions to the contract. When the contract exists and we add something new to the terms, we want to use the addendum. This addition could be the inclusion of real property or the addition of an inspection or report. Just remember, when we ADD to the contact, we use the ADDendum.
For example, let’s say during the escrow process there’s some damage to the carpets done by the pet or child of the seller. The seller agrees to then add a $5,000 credit for new carpet at the close of escrow. Because we are adding a credit to the agreement, we would use the addendum to account for this.
Amendment in Real Estate
Other times, you may be amending terms within the contract. Amend means to change or modify. Let’s talk about the RPA again. So we’re starting with the agreement of terms and conditions. Now you want to take something out or change something within the terms. In this case, we’re going to use the amendment.
So, a good example of when to use an amendment would be if you wanted to take something out of the agreed terms. Maybe the seller originally agreed to include the living room furniture in the purchase. The original agreement included the sofa, coffee table, love seat, and recliner. But, now, the seller has second thoughts about the recliner for sentimental reasons. You would then use an amendment to change the terms omitting the chair.
Addendum vs Amendment: When to Use Them
There may be situations where you may not be sure whether to use the addendum vs amendment. There could be times where you’re both adding as well as changing conditions that already exist. How do you categorize this? It seems to get tricky at this point. What form do you use? When in doubt, always use the addendum.
The addendum is a flexible document. Although you would primarily use this for adding a new condition, you can also use the addendum to exclude terms and document a detailed change or addition. The addendum has extra space so that you can get specific with line items. Remember that it’s important to be specific so that there are no misunderstandings on either side of what items were agreed upon.
Let’s circle back to the example of the living room furniture. This is a great example of using the addendum for inclusion, exclusion and detailing items. Let’s say it gets more complicated than one chair that needs to be excluded. You could then use the addendum to document exactly what the buyer is asking for.
Simply writing in, “Buyer wants all the real property in the home” is too vague. This could cause potential issues between parties so get specific and clearly outline all the buyer wants.
- Sofa in the living room to stay
- Recliner excluded from living room furniture
- Table with all 4 chairs in the dining room to remain
- All Bedroom furniture to remain at the close of escrow
- The bed with headboard
- 2 nightstands
- 2 dresser drawers
- Rocking chair
As you can see, this is clear and more detailed leaving no doubt what the buyer is requesting from the seller.
Now that we know more about the differences between the addendum vs amendment and how to use them, what do we do with these changes?
The Escrow Instructions and Addendum vs Amendment
Did you know that anything you put on an addendum and send to escrow will formally get put on an amendment? Yes, whenever a change is implemented and sent to escrow, they will create an amendment and add it to the escrow instructions. Actually, the addendum is the preferred way that escrow would like to receive changes in a transaction.
So using the addendum will ultimately make it easier on you as a real estate agent. You create the addendum, you send it to escrow and escrow creates the amendment to the deal and includes it in the escrow instructions.
The addendum and amendment are great sidekicks to the Residential Purchase Agreement. In real estate, you never know what’s going to happen during a transaction and the most well-written contract may need to be changed or modified. Even the Constitution has amendments!
So, remember that when you add to the contract, use the addendum. When you’re removing from or changing the contract, use the amendment. When you’re not sure, play it safe and default to the addendum.
As an agent, what’s the most creative item you’ve had to put on an addendum in a transaction? Share it with us!