Two of the most confusing and misused documents in a real estate transaction are the contract “amendment” and the “addendum.” I have seen contract files over the years where an amendment should have been used instead of an addendum and vice-versa. The misuse of these two is widespread because most real estate agents are not trained on the correct use of each one. Let me see if I can bring a little clarity on their purpose and how they are used with the Purchase and Sale Agreement before and after the offer has been ratified and delivered to the offeror.
An “Amendment” is used when changes need to be made to an already bound Purchase and Sale Agreement. Amendments in real estate contracts are very common. An amendment can correct an agreement or improve it. It can also be dubbed as a “modification” or “change” to any terms in the original agreement. An amendment may include anything from changing the purchase price to correcting the name of one of the buyers or changing the performance date of a contingency.
An “Addendum” adds terms and conditions to the pre-printed language and/or special stipulations in the Purchase and Sale Agreement (offer). Real estate contract laws and common boilerplate contract forms used by REALTORS® vary from state to state. Most state real estate contract laws allow addendums to be used for clarification and necessitate agreement on issues or items not a part of the original Purchase and Sale Agreement. In my home state of Tennessee, common contract addendums are used to list additional terms, secondary (backup) contracts, temporary occupancy of properties before or after closing, and for short sales.
Think of the addendum as an additional page(s) to the agreement that you can use if you run out of room under the Special Stipulations section. The addendum is made a part of the Purchase and Sale Agreement and if any terms of the addendum conflict with the terms of the Purchase and Sale Agreement, the terms of the addendum will control.
Simply stated, an addendum “adds” to the offer (look at the first three letters of the word – “add”) and an amendment “changes” the terms of an already agreed to and bound contract. It is good practice to use these forms correctly. The incorrect use of either form can make you look unprofessional to cooperating agents and title attorneys. You don’t want to sit down at the closing table with your client and have the closing attorney inform you an amendment should have been used instead of an addendum in the transaction. That can be quite embarrassing.