Whether you’re buying property, business, or a car, use a purchase agreement to clearly outline all the terms and conditions for both parties. Learn more about purchase agreements below and download a template so you can start writing yours today.
What is a Purchase Agreement?
A purchase agreement is a legal document between a buyer and a seller. It is a document that outlines the terms and conditions of a sale. Purchase agreements are often used for high-value items or custom orders where the buyer or seller needs assurance that both parties will follow through with the agreed-upon terms.
A purchase agreement is typically used for more complicated transactions, where several aspects may be involved such as the terms of payment or the delivery of goods. To be legally binding, it needs to be signed by both the buyer and the seller before any payment is made and goods delivered. For simpler transactions, a bill of sale or receipt may be enough.
This document can also be referred to as a:
- Purchase and Sale agreement
- Purchase Contract
Note that the buyer can’t use a purchase agreement to prove ownership — you’ll need a bill of sale to officially transfer ownership of the item from the seller to the buyer.
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.
When to Use a Purchase Agreement?
You should typically use a purchase agreement for more complex transactions, or high-value transactions—generally over $500. You can use a purchase agreement for various transactions such as:
- Real estate
- High volume purchases
- Used equipment
- Motor vehicles
Either the buyer or the seller can prepare the purchase agreement, just ensure both parties are happy with the terms and conditions of the agreement. If further terms are negotiated that are not included in the original agreement then you can use a purchase agreement addendum.
The Pros and Cons of Purchase Agreements
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 to Write a Purchase Agreement
To write a purchase agreement, you need to collect some important information. The agreement should identify the following essential elements:
- Seller: the party who owns the property and wants to sell it
- Buyer: the party who will buy the property and become the new owner
- Property: a detailed description of the property that is being sold
- Purchase price: how much the buyer will be paying
- Payment: how and when the seller will be paid
Once you have this information, you can put it together as below:
Step 1: List the seller’s and buyer’s information, including their name, address, and contact details such as phone numbers or email addresses. Make it clear which person is buying and which is selling.
Step 2: Describe the property that’s being sold. If multiple pieces of property are being sold at once, they can all be included here on individual lines.
Step 3: List the price for the property being sold. If sales taxes or other fees apply, explain who will be responsible for paying those taxes or fees.
Step 4: Explain how payment will be made by the buyer to the seller and how the property will be delivered.
Step 5: List any other terms, conditions, warranties, and liability waivers that are relevant to the sale.
To get started creating your purchase agreement, you can use our document builder, which has tips and instructions to help you, or you can write one from scratch using our template as a guide.
Sample Purchase Agreement Form
Below, you can see what a typical purchase agreement looks like. The following purchase agreement template shows how you can outline the essential details of the agreement between buyer and seller:
Can I write my own purchase agreement?
Yes, you can write your own purchase agreement. As long as the document includes all the necessary information and is signed by both parties, it will be considered legally valid.
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.
What is a buying agreement?
A buying agreement is another name for a purchase agreement. Purchase agreements are contracts outlining the terms of a sale. You can use a buying agreement for any kind of property, but it’s best to use a real estate purchase agreement for the purchase of a home.
If you’re selling or buying a business, you should use a business purchase agreement.
How legally binding is a purchase agreement?
A purchase agreement is as legally binding as outlined in the agreement itself. A purchase agreement will detail what qualifies as an acceptable reason for a buyer or seller to back out of a sale. Once it is signed, the contract is legally binding.
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.