In our last installment we covered offers and counter offers and how they work before the Buyer and Seller go under contract. Hopefully you were able to wrap your mind around that concept. If you need a refresher, click HERE. Today, we are going to cover how addenda and counters to addenda work after the Buyer and Seller are already under contract. By “under contract” we mean that the Buyer and Seller have an accepted offer. Let’s dive in.
Let’s say that Jerry Seller and Elaine Buyer are under contract. While under contract, Elaine Buyer sends over Addendum #1, which says:
Addendum #1
- Seller will pay $2,000 of Buyer’s Closing Costs
- The Piano will be an included item in the purchase
- The Settlement Deadline will be Wednesday, November 29th
- Seller has until Friday, November 17th, to accept this addendum
Jerry Seller receives the addendum, but decides he doesn’t want to agree to these terms, so he rejects Addendum #1.
Are Jerry and Elaine still under contract even though Jerry has rejected Elaine’s addendum? Yes.
Once the Buyer and Seller are under contract, an addendum is simply a request to change the accepted contract. If the addendum gets rejected, it is only a rejection of the request to change the contract; it is not a rejection of the contract itself. The Buyer and Seller simply go back to the last accepted terms of the contract, which in this case is the REPC, because the rejected addendum was Addendum #1.
OK, let’s mix it up a little. Jerry Seller and Elaine Buyer are under contract. Elaine sends over Addendum #1, which says:
Addendum #1
- Seller will pay $3,000 of Buyer’s Closing Costs
- The BBQ on the back deck will be included in the sale
- The Due Diligence Deadline will be December 15th
- Seller has until December 10th to accept this addendum
Jerry receives this addendum and decides to counter the addendum with Addendum #2, which says:
Addendum #2
- Seller will pay $2,000 of Buyer’s Closing Costs
- The BBQ will be included in the sale
- The Due Diligence Deadline will be December 15th
- Buyer has until December 11th to accept this addendum.
Elaine receives this addendum and counters the addendum with Addendum #3, which says:
Addendum #3
- Seller to pay $2,500 of Buyer’s Closing Costs
- Seller has until December 12th to accept this addendum
Jerry receives the Addendum #3 and rejects it. What terms from addenda 1,2, and 3 are now parts of the contract? Which items have been accepted? None of them.
This is what we call the Mirror Image Rule. You have to accept all of the terms in an addendum or you don’t accept any of the terms. Even though Jerry accepted adding the BBQ to the sale and changing the Due Diligence Deadline, by not accepting the Closing Costs of $3,000, he was in essence rejecting all of Addendum #1 and countering with Addendum #2. Remember what we talked about in the last installment, if you counter an addendum, you are rejecting the addendum and offering a new addendum instead. It doesn’t matter that he agreed to some of the terms of Addendum #1, it’s all or nothing, and in this case, neither of them ever accepted all of the terms of any of the addenda, which means they accepted none of the terms.
One more scenario:
Jerry Seller and Elaine Buyer are under contract. Elaine Buyer sends over Addendum #1, which says:
Addendum #1
- Seller will pay $4,000 of Buyer’s Closing Costs
- The treadmill will be included in the sale
- The Settlement Deadline will be December 22nd
- Seller has until December 15th to accept this addendum
Jerry receives Addendum 1 and counters with Addendum #2, which says:
Addendum #2
- Seller will pay $2,000 of Buyer’s Closing Costs
- Buyer has until December 16th to accept this addendum
Elaine accepts Addendum #2. Are items 2 and 3 from Addendum #1 accepted as part of the REPC? Yes.
When Jerry countered Addendum #1, what he was saying is that he accepts all of the terms of Addendum #1 except the closing costs. How is he saying that? Because he didn’t address those items in the counter, and the way a counter works is that it is saying that anything contained in the prior addendum that I do not change in the counter, I am willing to accept. Agents must be careful and aware of this rule. If you want your Buyer or Seller to reject a specific item in an addendum, it is best to address it directly.
I advise numbering items in an offer/counter offer like I did in the example and then addressing each numbered item in the counter offer. So, for example, Jerry could have addressed the treadmill in his counter by saying, “Item 2, treadmill to be included in the sale.” That way it is not confusing which terms from Addendum #1 Jerry is intending to include in his counter Addendum #2.
Hopefully that explanation was clear. This is a tough concept to get, but once you do, it makes sense.