If you look at a standard addendum form, you will usually see checkboxes across the top where the person using the form can indicate what the addendum is being added to. Typically, the checkbox choices are: real estate sale agreement; the seller’s counter offer; and the buyer’s counter offer. Whatever the exact choices, addendum forms always contain separate signature blocks for both buyer and seller.
In real estate, a “sale agreement” is just the buyer’s offer until it is signed by the seller. The same goes for the seller’s or buyer’s counter offer: they are just offers until signed by the other party. An offer or counter offer becomes a contract upon acceptance. Acceptance and, therefore, formation of the contract happen when the offeree signs the offer and dispatches it to the offeror. Click here for a detailed discussion of acceptance. Adding addendums to offers, especially addendums with signature blocks of their own, can cause serious problems if not handled properly.
Formation addendums are really additional terms to an offer proposed by one party. Say, for instance, the buyer wants their offer to be contingent on a due diligence period during which they will perform certain inspections. The contingency they want is too complicated to be written into the “additional provisions” clause of their offer, so they attach an inspection addendum form to their offer. Now there are four signature blocks on the offer – two on the sale agreement form and two on the addendum.
Hopefully, the buyer signs both the sale agreement signature block and the addendum signature block when they use an addendum form to add terms to their offer. Hopefully, the same is true of the seller but the truth is, the seller has the opportunity to sign only the offer, only the addendum or, as they should, both. Human nature being what it is, each of the three options actually happen in real estate transactions.
Only when both parties sign both documents is there no problem. Any other variation will result in formation problems. If the buyer fails to sign the addendum, questions are raised about whether the addendum was a term of the offer. Clearly, if transmitted at the same time as the offer itself, it is intended as part of the offer. What then when the seller accepts the sale agreement form without signing the addendum? Is the result different if the seller signs only the addendum?
We know contract formation is about mutual assessment and mutual assessment is about intent. Click here for a detailed discussion of contract formation. We also know that writings and signatures are required by the Statute of Frauds, but that the Statute is asymmetrical, riddled with exceptions and has nothing to do with whether a contract exists or not. Click here for a detailed discussion of the Statute of Frauds. Thus, a contract formed with addendums that is not signed by all parties create complicated legal issues of intent and application of the Statute of Frauds.
So unpredictable are cases concerning intent to form a contract and the Statute of Frauds that about all that can be said is that real estate licensees must do everything they can to avoid such situations. If mistakes are made, do not be quick to believe they can be used to advantage to get out of a contract or avoid a term the other side believes has already been agreed to. Do not be quick to jump to the conclusion that you have an enforceable contract either. If the proper signature cannot be gained, it is time to advise your clients to seek the advice of a lawyer.
Formation addendum problems can arise at any stage of the contract formation process. A particularly common place for problems, however, is the buyer’s counter to the seller’s counter. It is tempting at this point for a seller who wants to make changes to the buyer’s counter offer to “accept” the counter offer and attach to it an addendum with the desired changes. This manner of doing business creates real confusion because the seller intends another counter offer, but the paper work looks like acceptance coupled with a separate request for a mutual agreement addendum.
The solution to formation problems stemming from the use of standard addendum forms is diligence. Be aware of the use intended when using addendum forms and make sure that use is clearly communicated to the other party. Make certain the needed signatures are obtained on both sides. Do not be quick to declare terms included or contracts “dead.” If a disagreement over the meaning of addendums used during the formation of a contract cannot be resolved by the parties, it is time to advise legal consultation.
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