Addendum vs. Amendment - What's the Difference?

Alright, so this isn't the sexiest topic ever, but something you need to know as a real estate investor.  

There is a difference between an Addendum and an Amendment in the aspect of contract law.  (and before I continue, please know that this is for educational purposes only, I'm not a lawyer and I don't play one on t.v)

So, let's assume that you find a screaming good deal on a vacant house.  You estimate the repairs, run the comps, have your title company do a preliminary title search and determine -- it's a winner, I'm making an offer! (not always in that order - in hot markets, make the offer first get it in writing and then do your homework during your "inspection" period.)

The next thing you do is get an executed purchase and sales agreement.  What does that mean?  Executed just means that all involved parties have signed it.  Before all signatures are on there, it's just simply an offer.  

Now you have an executed purchase and sales agreement to buy this deal for all cash for $100,000 and to close by 12/15/14.  

You go in and do an inspection and realize that there is a roof leak you weren't planning on and that all the appliances have been stolen and a back window broken.  Let's assume that is $2,000 in work you hadn't planned on.  You can either eat that and lose it out of your profit, or you can renegotiate with the seller.  Seller agrees to take $98,000 instead of the $100,000 you originally agreed to. 

Now you have to AMEND (make a change to) the contract.  For this action you would use an Amendment which refers to the original purchase and sales agreement and notes the agreed upon change.  It's a simple 1 page document that you and the seller both sign acknowledging (by your signatures) that you're amending your original agreement.

During that same walk through you realize that the house has a full cord of wood on the side of the house that you would like to have included and left with the house.  You discuss it with the seller and he agrees, for this you would need an ADDENDUM (an addition) to the contract.  Again, a 1 page document which is "added to" the original agreement. 

So, in simple terms: 

An amendment makes a change to a contract

An addendum makes an addition to a contract

IMPORTANT NOTE:

Whenever using an addendum, it's a good idea to write the following ABOVE the signatures on the contract prior to signing:

"This document not valid without attached addendum A"

This let's all parties and the title company know that there is an addendum to the contract and not to just stop when looking at the original purchase and sales agreement.