What Is a Rider to a Home Purchase and Sale Agreement?

What is a rider in real estate? It’s language that expands on or clarifies the contents of a written contract. In this case, a purchase and sale (“P&S”) agreement.

Contract riders address specific concerns of a buyer or seller. They customize a contract’s terms and conditions.

Riders can be useful for averting misunderstandings that could turn into disputes if the terms are not clearly stated and carefully absorbed.

Popular Riders in Real Estate Contracts

Your state could have two or three dozen standard rider forms. Some lay out minor clarifications. Some are more substantial. For example, a state might direct parties to use riders detailing title issues or to make the required environmental disclosures.

Let’s consider a few more examples of riders often found in purchase agreements:

• Attorney approval rider. Lawyers for the seller and the buyer have to sign off on the offer and acceptance within a certain number of days. This makes the acceptance—which would normally seal the deal—now “subject to” the attorneys’ approval within X number of days. The idea is to create the opportunity for the parties to get a legal eye on the language of the deal, to be sure it really does meet their expectations.

• Sale of current home contingency rider. This is what you’ll need if you can’t go through with a purchase without selling your current home. Such a rider may be used in a situation where the sale of the buyer’s home is already pending, but contingencies still have to be met. As always, sign and incorporate any riders into the contract right away, so your transaction stays on track.

• Mortgage contingency rider. In this addition, the buyer stipulates that final approval for a mortgage must come through. The loan basics are described. The buyer sets forth the time period allowed for the loan approval. Now, the buyer has clearly stated a reason to cancel the purchase agreement, penalty-free. (This is why sellers often prefer bids from buyers that have already been pre-qualified by their lenders!)

• Appraisal contingency rider. The language stipulates that the appraisal report must show that the home is worth at least the amount of the agreed-upon purchase price. If the appraised value falls short, the buyer can cancel without penalty or renegotiate the price. An appraisal contingency rider is a vital piece of text. That’s why government-backed mortgages, such as FHA or VA loans, make it standard for approved borrowers.  

• Inspection rider. This one gives the buyer the right to hire, and receive a report from, a professional home inspector. If significant defects are found (as they often are), the buyer will get a certain period to back out of the contract, penalty-free. Alternatively, the rider can set forth a window for the seller to make necessary fixes—or reduce the home’s price so that the buyer can make the fixes. This rider should not cause undue delay. A normal time period might be a week or 10 days from the parties’ date of signing the contract. The parties should understand what sort of issues are serious enough to constitute material defects before beginning their negotiations.  

As you see, riders can both lay out contingencies and provide potential bargaining tools. They can guide timelines. They can push your closing date back to suit schedule conflicts that may arise for either side. They can give the parties a full opportunity to be completely sure they want to pursue the deal. They can explain how the financing should work. They might add or change a party’s name. They might list personal property that must be removed from the home for sale or must be left in it.

In all of these examples, they lay out information that makes a deal unique and specific to the parties involved.

The Role of the Rider: A Legal and Practical Tool

Most states let parties enter into a purchase contract without a lawyer. Yet having a lawyer draft and review riders can prove very helpful. For example, the rider might conflict with something in the main body of the contract. A lawyer might add text to explain that the text in the rider controls the meaning of the parties’ agreement.

Riders are legal language. Riders drafted by an attorney might direct a seller to retrieve and disclose certain information about the property’s condition. Sometimes, they set forth penalties for not adhering to terms of the agreement.

Your lawyer can:

• Explain the terminology and tell you the way it will affect your interests.

• Draft a contract, including riders, to meet your state’s legal standards.

• Negotiate the terms of the deal.

• Guide the buyer in withdrawing from a deal, if necessary.

If the seller wants to sell and the buyer wants to buy, a modified deal can normally be proposed and accepted. Yes, riders are legally binding. Yet, as you see, they can be negotiated between the parties. Your negotiation of the best possible terms and price can flow from the riders. (Do save the communications about your negotiations for your records!)

Most buyers and sellers choose real estate agents to represent them. But seeking out an agent is optional. The parties may decide to have lawyers representing them instead. Real estate transaction attorneys focus on specific tasks. They are generally less expensive than agents. It’s your call!

Is a Rider the Same as an Addendum?

The words rider and addendum are sometimes used to describe the same texts. There are technical distinctions between these legal words, though. Riders are part of the contract. They modify or clarify your current contract’s terms. A rider is commonly used to clarify the parties’ expectations when the main body of a contract form doesn’t have enough specificity.

In contrast, an addendum is an additional document with a new provision. An addendum may have separate signature lines. It sometimes lists additional people who need to sign.

Read the riders and any addenda to a contract carefully before signing, to have clarity about the expectations of each side of the bargain.

An attorney can suggest changes or responses to a boilerplate rider or addendum. What about a real estate agent? An agent is not permitted to offer legal advice. But agents can explain the components of a sales agreement as written.

If you have questions about the legal implications of any part of the contract, it’s a good idea to have an attorney review it.

Important note: Consider this article a starting point for your due diligence. The contents of this website do not constitute legal or financial advice.