What is a Contract Addendum? - Definition & Examples

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson we will define and explain the role of a contract addendum and illustrate a few examples of how contract addenda work in real estate transactions.

Contract Addenda

Roy has signed a contract to purchase a home, but since the contract was signed other factors have come up that require changes to the contract. Contract addenda are a common occurrence in real estate transactions, so it pays to understand what they are and how they work. Let's look at what a contract addendum is and some of the examples that might come as part of Roy's purchase.

Definition

A contract addendum refers to a document that serves as an additional agreement to a contract. It is made after the original contract has been signed. The plural to describe multiple agreements is addenda. The advantage of an addendum is that if Roy and the seller want to add something to the contract a one-page document can be created instead of having to create an entirely new contract. Addenda can also be used to override or change something that already exists in the contract. In either case, both parties must agree to the terms of the addendum in writing in order for it to be enforceable.

Examples

There are many situations that might call for Roy to need a contract addendum. A contract extension addendum might be necessary if for some reason Roy or the seller needs to push the closing to a future date. Another possibility is to have an addendum that makes Roy's obligation to purchase the property depend on a specific condition being met, such as obtaining financing from a mortgage lender. Roy might offer an addendum to ensure that certain items such as a refrigerator, a washing machine, or a specific piece of furniture are included in the sale.

An addendum can also be used to change the price of the home after an offer is accepted but before closing has occurred. For example, suppose the sale is contingent on the house not requiring more than $3,000 of repairs. If the home inspection identifies $5,000 of necessary repairs, an addendum can be created to reduce the price of the home by $2,000 if Roy is able to negotiate for the seller to cover the extra repair costs.

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