Addendums & Contingencies

Addendums modify or add to standard contract terms. Contingencies create conditions that must be met for contracts to proceed. Both are essential tools for customizing agreements and protecting parties from unforeseen problems. Understanding how these work helps negotiate favorable terms and avoid costly mistakes.

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Addendums vs Amendments

Addendum Additional terms added at the time of contract signing. Becomes part of the original agreement. Used when standard forms don’t address specific situations. Amendment Changes to an existing contract after it’s been signed. Requires agreement from all parties. Used when circumstances change during the transaction. Both must be in writing and signed by all parties to be enforceable.

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Common Purchase Contract Addendums

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Understanding Contingencies

Contingencies protect parties by allowing contract termination if specific conditions aren’t met. They shift risk from one party to the other. How contingencies work:

1. Contract includes contingency with specific terms
2. Party works to satisfy or waive contingency
3. If satisfied, transaction proceeds
4. If not satisfied by deadline, protected party can terminate
5. Termination typically results in earnest money return

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Common Contingencies

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Contingency Removal

Contingencies are removed through: Satisfaction Condition is met (loan approved, inspection satisfactory). Contingency no longer needed. Waiver Party gives up protection before condition is met. Often done to strengthen offer or meet deadline. Expiration Deadline passes without action. May result in automatic waiver depending on contract language. Termination Protected party exercises right to terminate because condition wasn’t met.

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Negotiating Contingencies

In buyer’s markets:

• Longer contingency periods
• More contingencies accepted
• Flexibility on terms

In seller’s markets:

• Shorter contingency periods
• Pressure to waive contingencies
• Competition may require reduced protections

Balancing strategy:

• Shorten timelines rather than waive entirely
• Pre-inspections before making offers
• Pre-approval to reduce financing risk
• Appraisal gap coverage instead of waiving appraisal

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Inspection Contingency Details

The inspection contingency is often most negotiated. Buyer options after inspection:

1. Accept property as-is - Proceed without changes
2. Request repairs - Ask seller to fix specific issues
3. Request credit - Ask for price reduction or closing cost credit
4. Terminate - Cancel contract and receive earnest money

Seller responses to repair requests:

1. Agree to all repairs - Transaction proceeds
2. Agree to some repairs - Negotiate specific items
3. Offer credit instead - Money instead of repairs
4. Refuse all requests - Buyer decides to proceed or terminate

Common inspection negotiations:

• Safety issues (electrical, structural, health hazards)
• Major system problems (HVAC, plumbing, roof)
• Code violations
• Deferred maintenance

Cosmetic issues and minor repairs typically aren’t negotiated.

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Appraisal Gap Coverage

In competitive markets, buyers may offer to cover appraisal gaps. How it works:

• Buyer agrees to pay up to $X above appraised value
• If appraisal matches or exceeds price, no gap to cover
• If appraisal is low, buyer covers difference up to agreed amount
• If gap exceeds coverage, other contract terms apply

Example:

• Purchase price: $400,000
• Appraisal gap coverage: $15,000
• Appraisal comes in at: $390,000
• Gap: $10,000 (within coverage)
• Buyer proceeds, covering $10,000 gap with additional cash

Risks:

• Requires additional cash reserves
• Paying more than appraised value
• Immediate negative equity possible

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Kick-Out Clauses

Used with home sale contingencies to protect sellers. How it works:

1. Buyer’s offer is contingent on selling their home
2. Seller accepts but includes kick-out clause
3. Seller can continue marketing property
4. If seller gets another offer, buyer has set time (typically 48-72 hours) to:
   • Remove home sale contingency and proceed
   • Terminate and allow seller to accept other offer

Why sellers want this:

• Reduces risk of being tied up while buyer tries to sell
• Creates urgency for buyer to sell quickly
• Provides backup option if buyer’s sale fails

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Writing Addendum Language

When standard forms don’t cover a situation, custom addendum language may be needed. Best practices:

• Be specific and detailed
• Include dates and deadlines
• Specify consequences of non-compliance
• Use clear, unambiguous language
• Reference the original contract
• Include signatures of all parties

Example language structure: “This addendum modifies the Purchase Agreement dated [date] for property at [address]. The following terms are added: [specific terms]. All other terms of the original agreement remain in effect. In case of conflict, this addendum controls.”

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Addendum Timing

At contract signing: Most addendums are attached to the original offer or counteroffer. During transaction: Amendments can be added anytime with all parties’ agreement. Common mid-transaction amendments:

• Closing date extensions
• Price adjustments (after appraisal or inspection)
• Repair agreements
• Contingency extensions
• Possession date changes

All parties must sign amendments. One party cannot unilaterally change contract terms.

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Protecting Yourself

For buyers:

• Ensure adequate contingency periods
• Understand exactly what protections exist
• Know all deadlines and consequences
• Don’t waive contingencies without understanding risks
• Get everything in writing

For sellers:

• Understand contingency terms before accepting
• Know when contingencies expire
• Track deadlines for kick-out clause exercise
• Ensure amendments are properly signed
• Keep copies of all documents

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