Originally published in the OREA Newsletter November 2013
An amendment – a change to one or more terms in an agreement – is a tool commonly used in real estate. A latecomer to the transaction, an amendment is proposed after an offer has been accepted and a valid and enforceable agreement of purchase and sale (APS) is already in place. When an amendment is presented, a party to the agreement seeks a change to the original deal -- technically, it is an offer to amend.
Amendments happen on a regular basis and you should be prepared and knowledgeable in dealing with them, according to several REALTORS® interviewed for the
EDGE newsletter.
You will likely encounter situations in which one or both parties wish to amend an agreement. However, both sides must still agree in order for an amendment to take effect. If you wish to amend an agreement, it is suggested that you use OREA’s Standard Form 120. When first submitted by one party to the other, this form is an “offer to amend” the signed APS that exists between the parties. As an offer, it is open to acceptance or rejection by the other party. That document also contains an irrevocability clause so that the offer to amend is open for acceptance until a specific time, after which it is void. This form does not, however, void the original APS. It changes the APS to reflect the amendment to which both buyer and seller have agreed. It also specifically confirms that all other terms and conditions of the original APS remain the same.
Amendments are often used to change a closing date or adjust a selling price after an inspection unearths an issue that the buyers feel warrants a lower price, says Nancy Bloom, a Toronto REALTOR® and OREA instructor.
For instance, an inspection may reveal issues with well water quality at a cottage. The buyer still wants the cottage but now needs to spend more money improving water quality, so he proposes to amend the APS to a lower purchase price.
On the other hand, sometimes a seller requests an amendment. She may suddenly realize she wants to keep something -- such as the chandelier in the family room -- but forgot to specify in the APS that this fixture should have been excluded.
An amendment means a change is requested, says Bloom, and it can be used to correct any errors that may have been missed, such as a spelling mistake. However, she has also seen amendments used in transactions when another document might have been more appropriate. “An amendment should not be used to remove a condition,” she says “If a condition is met, a notice of fulfillment should be used. If a condition is not met but the client still wants to proceed with the transaction -- such as when a home inspection reveals deficiencies that the buyer is willing to accept -- a waiver should be used.”
Amendments are sometimes misused when the negotiation is not completed to everyone’s satisfaction at the offer table, in the view of Doug Monett, a Huntsville REALTOR®. “My belief is that if a deal is done right, an amendment is not usually required. However, sometimes an amendment is needed when a deal is going off the rails. It is the document of choice that saves a lot of offers at the eleventh hour.”
Sometimes the bank simply needs more time to get its paperwork in order, says Monett. “Still, the transaction can fall apart right there. That extension has to be agreeable to both sides, and an amendment often does the trick.”
Financing arrangements often lead to proposals for an amendment, says Monett, who is also an OREA instructor. “I’ve had situations where we’re dealing with a mortgage company or working through a mortgage inspection and the buyer needs a few more days beyond the time frame in the condition in the original offer. The only way to achieve that is if the seller agrees. In that case, an amendment is a tool we must use.”
Some years ago, he recalls an offer with a closing date agreed to by both parties, but no-one realized it coincided with a new statutory holiday. “The buyer rep called me back to say the bank would be closed that Monday. I thought he was pulling a fast one until I checked into it. That was the first year Family Day was celebrated in Ontario. We used an amendment to change the closing to Tuesday.”
Monett has also seen amendments used when another document would have been more suitable. “Once in a while, buyer reps produce an amendment when a notice of fulfillment or a waiver would be the better tool. Their intent was clearly to drive down an already-agreed upon price at the last minute by raising an issue ‘discovered’ at the home inspection when the seller and listing rep assumed the negotiations were already complete. This is heavy-handed negotiating, to say the least. I always warn sellers of this slight possibility and prepare them ahead of time with their response. Often the buyers back down because they really wanted the house all along – they’re just trying to squeeze the seller for a better deal.”
Christian Allan, a REALTOR® from Perth, Ontario, says amendments are sometimes sought by buyers who want to re-open a transaction to a lower price. “I’ve worked with amendments quite a bit, and most occur when buyers are trying to renegotiate the price or delete conditions to make the offer more attractive to the seller,” she says.
Amendments are often proposed in real estate, but sometimes they are not the best thing for the deal, says Allan. She was recently involved in a deal in which the APS was accepted by both parties but a small amount of galvanized plumbing was discovered in the basement that she felt a minor repair could fix. “The buyer insisted on a price reduction and wanted an amendment. Sometimes it’s a case of saying to the buyer, ‘You’ve got to be more realistic here’. Buyers sometimes see it as their right to come back with an amendment, whereas sellers are surprised to be asked to renegotiate.”
“If my buyers want to revisit something really small, I try to coach them to reflect on whether that is the right move. I hate to see them go back to the seller to renegotiate an agreed-upon offer over a minor issue. On the flip side, I also coach my sellers that they have the right to refuse that amendment.”
An amendment is not always a simple solution. Clients should be advised to proceed with caution in proposing an amendment. In some cases, that action -- especially if not accompanied by well-drafted irrevocable provisions -- may be viewed as “re-opening the deal” and the other party may then be able to treat the original APS as terminated.
The OREA Standard Form 120 contains an irrevocability clause, which means that the offer to amend is open for acceptance for a certain time period. If the offer to amend is properly accepted during the irrevocable period, the terms of the original APS are amended. If the offer to amend is not accepted during the irrevocable period, the offer to amend is void and the original APS is not changed (by virtue of the wording in that irrevocability clause).
Setting the irrevocable time period in an offer to amend is also very important, especially when the offer to amend is made within the conditional period and when the proposed amendment deals with the conditions. For more details on setting the irrevocable time period and other information on amendments, see “Amending the APS” in the OREApedia section of
www.orea.com.
If any questions arise as to the validity of the APS as a result of proposed amendments, the parties should be referred to their lawyers before they even attempt to renegotiate.
