Buyers and sellers of property like real estate, cars, and other high-value items use purchase agreements to outline the details of the sale and to protect themselves during the transaction. If you’re considering whether to use a purchase agreement, it’s essential to understand how they work.
We’ll take you through what purchase agreements are, why you need them, and how to write and send them.
What Is a Purchase Agreement?
A purchase agreement is a legal document between a buyer and a seller of property. The agreement describes the terms and conditions of the sale and ensures that both parties will follow through on their promises.
Good purchase agreement templates will identify the following basic elements:
- Seller: the party who owns the property and wants to sell it
- Buyer: the party who wants to buy the property and become the new owner
- Property: a detailed description of the property being sold
- Purchase price: the amount the buyer will pay
- Payment: how and when the seller will be paid
What’s the Difference Between a Purchase Agreement and a Bill of Sale?
A purchase agreement is signed before any property or money is exchanged — it’s an agreement between the parties to enter into a future transaction. The purchase agreement documents the details of the transaction to ensure both parties understand and agree to the terms.
A bill of sale is signed during or after the exchange of money and property. It documents the transfer of ownership from the seller to the buyer and acts as a transaction receipt.
For your reference, a purchase agreement can also be called a(n):
- Agreement to sell property
- Purchase and sale agreement
- Contract for sale of property
Common Uses for Purchase Agreements
Purchase agreements are commonly used for high-value items such as:
- Real estate
- Car or truck
- Concert tickets
No matter what the purchase price is, you can use a purchase agreement for any property you want to sell.
How to Send a Purchase Agreement
Traditionally, purchase agreements were sent through the mail or delivered in person, but now it’s relatively common for them to be sent and signed electronically. If you’re not comfortable e-signing, you can sign and send the purchase agreement by certified mail and have the other party sign the printed copy.
Do I Need to Send a Purchase Agreement? What Happens If I Don’t?
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 completed purchase agreement, they confirm that 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 a purchase agreement, 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).
How Much Does It Cost To Produce a Purchase Agreement?
It doesn’t cost anything to create a purchase agreement, but buyers are sometimes required to pay a deposit on the item. If the seller requires an earnest money deposit, it should be clearly stated in the purchase agreement along with the other terms of the sale.
The Pros and Cons of Purchase Agreements
- Clarifies the details of a sale for all parties
- Provides a written record in case of disputes
- Ensures the other party can’t easily change their mind or back out of the transaction
- Can include warranties and liability waivers for extra legal protection
- Can be time-consuming to write from scratch
- Binds you to a future sale, preventing you from easily changing your mind
Can a buyer back out of a purchase agreement?
Yes, a buyer can usually back out of a purchase agreement, but they may face penalties such as losing their deposit or paying a fine. Any consequences of backing out of the sale should be clearly stated in the purchase agreement.
Can a seller back out of a purchase agreement?
Sometimes sellers can back out of a purchase agreement, if the agreement specifically allows it or if contingencies outlined in the agreement aren’t met.
If the buyer fulfilled their end of the agreement and the contract doesn’t include a clause permitting the seller to back out, the seller could be legally required to follow through with a sale or face legal action.
What happens after you sign a purchase agreement?
Once you’ve signed a purchase agreement, you’re legally bound to the terms of the agreement and the buyer must pay the seller the agreed-upon amount by the date listed in the agreement and the seller must hand over the property. The parties should use a bill of sale (or a deed if selling real property) to legally transfer ownership from the seller to the buyer.