A purchase agreement is a legal document that outlines the terms and conditions of a sale. It ensures the buyer and seller understand the arrangement and can be useful when selling real and personal property, including a home, business, car, or other personal item.
Scope of the Agreement
A purchase agreement fulfills three main purposes:
- It identifies the property the seller is selling.
- It explains the steps necessary to complete the transaction.
- It outlines each party’s obligations, liabilities, warranties, and rights.
When to Use a Purchase Agreement
This agreement is useful for high-value items or custom orders where the buyer and/or seller need assurance that both parties follow the agreed-upon terms. It’s also beneficial for more complicated transactions with several components, including payment and goods delivery.
You can use a purchase and sale agreement for various transactions, such as buying/selling:
- Real estate
- Used equipment
- Personal property like antiques
- Motor vehicles
Either the buyer or the seller can prepare the purchase agreement and ensure the other party is happy with the terms and conditions of the contract.
Suppose you and the other party negotiate additional terms that aren’t in the original agreement. In that case, you can use a purchase agreement addendum or a real estate purchase agreement addendum (if purchasing or selling real estate).
How Binding Is a Purchase Agreement?
A purchase agreement becomes legally binding when the seller and buyer sign it. The buyer must also obtain notice of the seller’s acceptance.
If you’re buying or selling any property, it’s a good idea to document the sale with a purchase agreement. Having a written contract in place lets everyone involved consider and clarify the details of the sale. When both parties sign a purchase contract, they confirm they understand how the transaction will occur.
Purchase agreements also legally bind each party to follow through with the terms of the sale. If a buyer and seller verbally agree to a sale but don’t use this contract, there will be no clear course of action in a dispute (such as if the item isn’t in the condition the buyer expected or if one party backs out at the last minute).
What to Include in a Purchase Agreement
Explore the clauses you should include in a purchase agreement to clarify its scope:
Property Description
Be as specific as possible in your property description to ensure the buyer and seller understand the property that’s being transferred.
If you’re selling or purchasing real estate, use the property’s real description. If you’re selling a piece of personal property, provide as many details as possible about its size, shape, color, condition, and other identifying factors.
Financial Terms
Indicate the purchase price, which is the amount the buyer is willing to pay. The seller must also agree to it.
Depending on the nature of the entire agreement, you may also include an earnest money deposit that will go into an escrow account. This payment shows the buyer is serious about their intent to go through with the purchase.
If the buyer and seller agree to seller financing, you can include this information within the financial terms clause.
Conveyance Method
Specify the method for conveying the property. You might use a bill of sale for personal property or a real estate deed for a home.
Contingencies
Include any contingencies so neither the buyer nor the seller goes through with the sale without complete satisfaction. For example, the purchase agreement may be contingent on the buyer’s receipt of financing, a thorough property inspection/appraisal, or a clean mortgage loan inspection.
A seller may also want to wait to hear from a credible financial institution verifying a buyer’s credit report. This documentation can give them more confidence the buyer will be able to pay back the amount they owe.
Timing
Explain key dates that pertain to the arrangement, like a period for the buyer’s due diligence or the intended date of the final sale.
Seller Representations and Warranties
Include representations and warranties from the seller. For example, the seller can attest that they have the legal right to sell the property. They may also promise that the property is in the condition they claim it to be.
Seller’s Duties
Once the buyer purchases the property, the seller may have ongoing duties. For example, the seller may have to perform maintenance for the item for a certain period following the sale.
Depending on the parties’ negotiations in a real estate purchase agreement and the laws in their jurisdictions, a seller might remain responsible for paying a property’s real estate taxes for a specified period after the sale.
