A purchase agreement is an outline of the terms governing the sale and purchase of some goods. Once signed by both the seller and the buyer, it becomes legally binding and can be enforced in a court of law should there be a breach of contract by any of the parties involved.
This article discusses in detail what a purchase agreement is, when it is used, its contents, as well as differences between a purchase agreement and a bill of sale. Using this guide, you can download a free purchase agreement template or free blank purchase agreement form to fill.
What Is a Purchase Agreement?
A purchase agreement also known as a sale contract or purchase contract is a legally binding agreement used to document the transfer of property ownership from a seller to a buyer. The purchase and sale agreement provides the legal framework for closing any sale process or deal.
In real estate proceedings, it would highlight the sale price, earnest money deposit, payment requirements and other relevant contingencies relating to the transfer of property title. It would also show the possession date which is the date the buyer can take control of the property put up for sale, as well as repairs the seller may have to make before this date.
In general, a purchase agreement is drawn or drafted to protect the rights of the buyer and seller. Violation of the agreement is known as a breach of contract. Unlike service agreements, a purchase agreement is used for the sale and purchase of goods. The former is analogous to purchase agreement but is used only for agreements regarding services.
When Are Purchase Agreements Mainly Used?
A simple purchase agreement may be used when:
- Additional terms have been negotiated and agreed upon outside the standard agreement. In this case, it functions like an agreement addendum
- When the value of the goods bought is considerably high
- The seller will be responsible for financing the buyer in the purchase. This is a common phenomenon in real estate transactions
- There is a need to protect the rights of the buyer or seller, especially when the goods bought are used products. By signing an agreement, both parties can testify that the product was in good condition as at the time of purchase
- The buyer and the seller choose to document some terms for future dealings. For instance, both parties may agree that the buyer buys a particular good only from a particular seller and for a certain price
A purchase agreement may also prove useful for income and tax documentation. This is because some states require the seller to include a sales and use tax in the total purchase price of the goods put up for sale.
In the telecommunications industry, a customer may also be made to fill a simple purchase agreement pdf form for the purchase of a communications product. The purchase agreement in this setting is known as a volume purchase agreement.
What to Cover in a Purchase Agreement Form?
For a purchase agreement form to serve the purpose of effectively transferring ownership of property from seller to buyer, it must contain the following details:
- Name of seller and buyer
- Contact addresses, phone numbers and other relevant information of both parties
- A succinct description of the property or items to be purchased
- The quantity of each of these goods
- The purchase price agreed upon by both parties
- The type of sale
- Terms regarding the payment methods and the time this payment should be made
- A detailed description of the goods should be delivered. There should also be a guide regarding when and where the products put up for sale should be delivered
- Signature of both parties involved
- Names and contact information of witnesses to the signing of the agreement
- Relevant dates related to when each requirement is to be fulfilled
- A note showing whether there is room for a revision of the agreement later in the future.
A purchase and sale agreement may also be developed to contain other details like:
- The sum paid as downward payment
- Warranties provided by the seller with regards to the products’ quality or suitability of use for the buyer’s intended use.
Purchase Agreement V.S. Bill of Sale
A purchase agreement and bill of sale are two different documents. A purchase agreement is usually signed before a transaction is executed and spells out the terms and conditions governing the sale.
A bill of sale on the other hand is drafted and signed during or after exchange of money or value for the sale executed. It is the receipt of the sale. The bill of sale is usually signed by the seller to officially declare that the goods ownership has been transferred to a particular buyer in exchange for a sum. In some states, it may need to be notarized, be signed in the presence of two witnesses or both at once.
A purchase agreement contains more details about the transaction like liability and warranties than a bill of sale. It is also more flexible than a bill of sale with regards to the delivery of the bought goods.
Is there a signing order as far as a purchase and sale agreement is concerned?
Most often than not, the buyer signed the purchase agreement first. The seller may then sign thereafter.
Can I get out of a purchase agreement with no penalty?
There’s no clear cut answer to this. This will generally depend on what was agreed from the inception. A well-drafted purchase agreement will usually contain contingencies describing situations where one party can back out of the agreement without fear of facing any penalty.
What happens when a purchase agreement is not honoured by one of the parties?
It is treated like a breach of contract. That is, the violator may be required to make legal or equitable remedies. In the case of legal remedies, the one who breaches the agreement may be required to pay some money to cover for some economic losses caused by the breach. Equitable remedy (non-monetary solution) may involve a court injunction, cancelling of the entire contract or amendment of some parts of it as agreed by both parties.
How are the remedies to a violation determined?
They may be determined by the terms of the agreement, contract laws of the state or the facts surrounding the violation of the agreement.
How long do I have to rescind my decision to sign an agreement?
By default, this will depend on the terms and conditions governing the transaction or agreement. However, if you agreed to a deal over the phone or online, the consumer rights regulations gives you a grace of 14 days to choose to go on with the agreement or cancel it.