Texas real estate contracts just love a good addendum!  Sort of like the seasonings in your favorite recipe, the right addenda will bring the deal together.  But the wrong ones (or missing ones) can leave a bad taste for your client and your broker.

If you’ve ever stared at your forms library wondering which form to include in your transaction, you are not alone.  And if you’ve ever sent a file to your broker only to get it back with a “Please add the XX addendum” comment, welcome to the club!

Let’s take a quick look through the top five most common promulgated addenda, what they do, and when to use them.  That way you can confidently choose the right supporting documents every time.

Why Do Addenda Matter?

In Texas, the One to Four Contract is definitely the main dish, but it’s rarely the entire meal.  The addenda are like the side dishes – extra documents that expand, clarify, or alter the terms in the primary document.  Different addenda will be necessary based on the specific circumstances in each transaction, so it’s important to put some thought into selecting the correct ones.  Leave out one of these critical documents, and you might:

• Violate state law;
• Leave out a key client protection;
• End up with a noncompliant file; or
• Create an easy way out for the other party.

➡️ Pro tip:  only use official TREC or TXR promulgated forms and only in the circumstances where those documents are appropriate.  Don’t add to or subtract from the promulgated terms without talking to your broker first.

🚨 At Advantage TC, we review every incoming contract to make sure the right addenda are included before your broker, the title company, or the other agent tries him to chase you down.

The Top 5 Must-Know Addenda (And When To Use Them)

1.  Third-Party Financing Addendum

✔️ When To Use:  any time the buyer is using conventional, FHA, VA, USDA, reverse mortgage, or any other type of borrowing or financing to fund the purchase of the property.  TREC requires that any “proceeds of borrowing” that are used to purchase the property on the Third-Party Financing Addendum.

✔️ Purpose:  spells out the loan terms, approval deadlines, termination rights, and other information pertaining to the financing.

✔️ Common Pitfall:  failing to give this document the proper respect can get an agent into trouble, particularly the buyer agent.  There are critical deadlines for the buyer in the Third-Party Financing Addendum that the agent must watch carefully.

2.  Addendum for Property Subject to Mandatory Membership in a Property Owners Association (the HOA Addendum)

✔️ When to Use:  any time the property sits within a mandatory HOA.

✔️ Purpose: notifies the buyer of fees, resale certificate requirements, and their right to terminate in some circumstances.

✔️ Common Pitfall: not including the document just because “the title company will send the resale cert.”  Wrong answer!  The addendum contains important agreements between the parties, including allocation of costs for various HOA-related fees, and it must be included to avoid unpleasant surprises.

3.  Addendum for Sale of Other Property by Buyer (the Contingency Addendum)

✔️ When To Use:  any time the buyer is using the proceeds from the sale of any other property to complete the purchase of the property referenced on the One to Four Contract.

✔️ Purpose:  protects the buyer’s ability to back out if the other property doesn’t close in time.  Also notifies the seller that some of the purchase funds are not actually in the buyer’s hands at the time the contract is signed.

✔️ Common Pitfall:  not including the document out of fear that a contingency offer will not be accepted by the seller.  Recent revisions to the One to Four Contract form now prohibit any proceeds from the sale of another property from being counted as cash in the current purchase unless the contingency addendum is used as required.

4.  Addendum for “Back Up” Contract

✔️ When to Use:  Any time the buyer is making an offer on a property that is already under contract.

✔️ Purpose:  specifies timelines, procedures, and buyer protections based on whether the primary contract terminates within an agreed amount of time.

✔️ Common Pitfall:  failing to include a deadline by which the primary contract must terminate.  Also, confusion about the effective date in the back-up contract and when contract timelines begin to run.  Remember, all contract deadlines are suspended until the primary contract terminates.  Begin counting towards the deadlines only after the backup contract becomes primary.

5.  Addendum Concerning Right to Terminate Due To Lender’s Appraisal

✔️ When to Use:  used in conventional loans or “other financing” situations where the buyer agrees to waive some or all of their right to terminate if the property doesn’t appraise at the sales price.

✔️ Purpose:  specifies the parties agreement concerning the buyer’s right to terminate the contract if the appraisal comes in below the sales price and under what conditions the buyer waives some or all of their termination right.

✔️ Common Pitfall:  lack of understanding about how the document works; trying to use the appraisal addendum with FHA or VA financing (which is not permitted under FHA/VA program rules)

The Quick-and-Dirty “What Goes Where” Checklist

Before sending that contract to the other side, or your broker, or title, ask:

👉 Is there financing? ➡️ Third-Party Financing Addendum

👉 Is the property in an HOA? ➡️ HOA Addendum

👉 Does the buyer have an existing home to sell? ➡️ Sale of Other Property by Buyer Addendum

👉 Is the property already under contract with someone else? ➡️ Back-Up Addendum

👉 Does the buyer want to waive some or all of their appraisal termination rights? ➡️ Appraisal Addendum

🚨 At Advantage TC, we use a dedicated addenda checklist to make sure every contract is complete and compliant – saving you from missing forms and last-minute scrambling.

Wrapping Up

The right addenda do a lot more than just complete a compliance checklist.  They protect your client, reduce your (and your broker’s) liability, and make you shine like the professional you are. 

The wrong addenda?  Or no addenda when there should be?  Let’s just say that tends to cause problems and unnecessary drama.

When in doubt, consult your broker or your trust TC (that’s us!!) to confirm you’re using the right forms.  Because after all, a well-prepared contract is the first step to a smooth closing.