I agree with what everyone else has said. Keep in mind that there is always risk in a transaction. If you love the house you are buying, taking the risk is worth it. We can never give a 100 percent gaurantee that a house will close. Even if the deal doesn't work out, there is always another house out there! Best of luck!
Your answer is very easy. If you want the house you will have to sign this addendum.
I disagree a bit with Micheal that they will simply cancel your offer if another one comes in that is better. While that may have been his experience (and I would love to hear about it if it was) my experience has not been that banks will cancel offers for better ones. They are simply looking for unilateral control of the situation. At the end of the day this clause will not likely be exercised.
It is however a gamble - unless you are on a strict timeframe you really have nothing to lose with the exception of possibly your inspection and appraisal fee, and of course time. You could ask your agent to put together an addendum (don't try to change their paperwork) that overrides this stating that the bank will refund your appraisal fee and inspection fee(and possibly other misc fees that you pay prior to closing out of pocket) if the bank chooses to cancel after you have spend said money. It may fly or it may not but it is worth a shot. If you can get it through then the only thing that you will lose is time.
So, you should consult with the agent you hired to help you make the decision to determine your next move. It is standard language in lender mediated properties, at least according to my experiences.
What there are saying is if another offer comes in that they like better than yours they can cancel your purchase agreement and refund your earnest money.
I would not sign the addendum unless you are o.k. with that.
If you don't have an agent representing you I would find one who has experience with foreclosures.
Michael Doyle Realtor
Of course you should speak with your agent and an attorney if you need legal advise but it is things like this that are the reason you are getting the home for a very good price (I assume).
Nearly all of my clients that have bought a foreclosure have felt mildly violated during the process but after closing and a few months pass they are happy they bought the home.