Within about 30 seconds of reading you will know exactly what a rider is. (see key takeaways about riders just below)
Purchasing or selling a home can come with a ton of paperwork. Between loan documents, purchase agreements, disclosures, and addendums, it’s easy to get lost in the process!
Trust me I know!
And then there is “the rider”. Which begs the question:
What is a rider in real estate?
How is a rider clause different from an addendum?
Should I even care?
To answer the last question… YES, YOU SHOULD CARE because a rider is a legally binding document that can change the terms and conditions of the sale of your house.
Because of this, we will dive into riders, what they are, why they are important, and how they are different from addendums.
By the end of this, you will have a clear picture of the purpose of riders in real estate, and how they can affect you and the house you are buying or selling.
Shall we get started?
KEY TAKEAWAYS ABOUT RIDERS:
- A rider in real estate is a legally binding document (a piece of paper) added to the contract to buy or sell a house.
- This document includes one or many extra details or rules about the sale of a property.
- The buyer and seller must agree on the new terms and conditions.
- A rider is only valid if the seller and the buyer sign it.
- Typically, a rider is used because an attorney would be more comfortable if the issue were addressed – e.g., a hazardous waste provision (in my experience anyway – more on this shortly).
Table of Contents
What Is a Rider in Real Estate: Definition
LEGAL DEFINITION OF RIDER:
The term “rider” is a legal term that refers to extra stuff added to an already signed contract.
It rides on the original contract, and that is how it got its name.
A rider is another one of the many documents you may come across when buying a house anywhere, including Colorado.
A RIDER IN REAL ESTATE:
A rider in real estate is used to add specific terms, conditions, or information to the main contract for a property transaction.
Commonly, a rider is used by a real estate lawyer to update the standard Purchase and Sale Agreement. Perhaps they would like to clarify some details pertaining to Close of Escrow (COE).
For the most part, riders help save time (and legal fees) as lawyers do not have to redraft or rewrite the entire contract.
The Role of a Real Estate Rider
The role of a rider in a real estate contract is to add specific terms, conditions, or information to the main contract for a property transaction.
Officially, a rider should be used to add extra details to something that is already included in the purchase agreement.
Riders help customize the agreement to address unique aspects of the deal, ensuring that all important details are clearly outlined and legally binding for both the buyer and seller.
If there is something in the purchase agreement that you feel needs to be talked about more, a rider is the way to do it.
In recent history, agents have used an addendum. While this works out, it really isn’t the correct “legal” way to do it –
Just Ask Steve Bruscheki: A real estate attorney with over 30 years experience.
Let’s see what he says about it below:
Rider versus Addendum: What's the Difference?
According to Steve, the Attorney:
A rider is used to modify the terms of an existing contract. A rider can add extra details to a particular paragraph in a purchase agreement. A rider will clarify any buyer or seller’s uncertainty about something contained in the original contract.
Compare this to an Addendum:
In theory, an addendum is used to add something entirely new. An addendum covers something that is not covered in the purchase agreement at all.
In practice, realtors often use an addendum to add extra information about something already addressed in the contract. While this works out fine, it’s not the correct “LEGAL WAY” to do it.
Common Examples of Riders When Buying or Selling Property
I buy Denver houses fast and in my real estate (spanning 20+ years now – heck!) I have come across several riders. They have been used to shed light on ADU’s, DADU’s and other various items.
In my experience, they come up because an attorney isn’t 100% happy about the language in the contract.
I have never heard a buyer or seller ask to create a rider. Nor have I ever seen a realtor create one. Typically, they will address anything with a supplement or in the “Additional Provisions” section.
Here are a four examples I have come across in recent history when buying houses:
Items To Be Included In The Sale: A shed on the back of the house had not been named in the purchase agreement. My attorney believed this was an appurtenance. He insisted it was included in the sale and used a rider.
Hazardous Waste Provisions: My attorney wanted to add extra language because he was concerned about a nearby super fund site.
Tenant Status: A tenant was in the property, but on all occasions, the attorney wanted to add precise details about the tenant’s responsibilities, when they will be leaving, and penalties around this.
Road Works: I was buying a property in Denver on a road that was potentially being expanded. There was potential the Denver City needed the house to make the road bigger and if they needed they would take the property. This is an example of condemnation in real estate. To address this my attorney added a number of provisions and details about how the seller would compensate me if this happened.
What Are Mortgage Riders?
Of course, defining real estate terms and jargon is never as easy as ABC.
The term rider is used in mortgages and on signs too!
Mortgage riders, like purchase agreement riders, are legal additions to a typical loan document.
These riders are typically utilized when the mortgage comes with an irregular feature.
This means lenders can use the rider to highlight (and clarify) an unusual or unique loan feature to make the involved parties understand it.
To ensure a rider is signed by all parties, a bank, broker, or real estate investor may use an RPA to manage the process.
While the top of the rider might list all of the people involved the rest of the time the attorney may draft the rider with the first person and then et al.
What Is a Sign Rider in Real Estate
A sign rider is a small sign that often sits on top of a larger sign.
A common example in real estate is the following:
An agent puts out a for-sale yard sign in your front yard. A sign rider is a smaller sign added to the original bigger sign.
The rider might say:
- Open house
- Inherited Home
- Estate Sale OR
- SOLD!!!
The rider can sit above, on top of, or below the main sign. The reason it got it’s name is because it rides on the other sign.
Is a Contract Rider Legal?
As with an original contract, a rider acts as a legally binding agreement. Since the rider is generally introduced only after the original contract has been signed, all the involved parties will need to review and approve any changes. By design, the rider is required to reference the original contract that it intends to modify.
When drafting a rider, a lawyer can place it in any contract.
Generally, the rider is added to a contract in the appropriate section. If there isn’t a section, it might get added by the real estate lawyer at the end of the contract terms. Before it is approved, all parties must review the rider’s new terms. The rider is signed if all parties are happy with the new terms.
For the most part, involved parties sign underneath the rider to ensure all the terms have been approved by everyone involved.
Is the Contract Rider Negotiable?
A rider is 100% negotiable. If you don’t agree to it then you can counter. You can counter as many times as you like until the rider makes sense to you and what you need.
Before closing any sale on real property, all parties must agree on the terms and conditions highlighted by all contracts; this includes the original purchase and sale agreement and the contract rider.
This ensures that no party is shortchanged in the deal.
Conclusion
In conclusion, riders in real estate are crucial additions to the main contract that provide specific terms, conditions, or information tailored to the unique aspects of a property transaction. They ensure that all important details are clearly defined and legally binding, offering protection and clarity for both buyers and sellers. Understanding the role and impact of riders is essential for navigating real estate deals effectively.
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