Having a solid purchase agreement is a smart and often necessary step when buying a car, selling land, acquiring business assets, and more.
This kind of agreement is a legally binding contract that protects all parties involved, as it outlines exactly what’s being sold and the terms of the deal.
In this guide, we’ll tell you everything you need to know about drafting a legally sound purchase agreement, from what it is to when to use it.
Let’s dive in!
What is a purchase agreement?
Simply put, a purchase agreement, also known as a purchase contract or sales agreement, outlines the terms and conditions of a sale between a buyer and seller.
It’s used for all kinds of transactions, from real estate and vehicle sales to business acquisitions and equipment sales.
If all parties sign a valid contract for the purchase, then the agreement will become legally binding.
What’s the difference between a purchase agreement and a contract of sale?
Both a purchase agreement and a contract of sale outline the terms between a buyer and seller. The differences are in the timing that ownership transfers.
- Purchase agreement: Common for transactions when there’s a gap between agreeing to the terms and the transfer of ownership. For example, in real estate when buyers and sellers need time for inspections or financing before the sale is finalized.
- Contract of sale: This legal document typically finalizes the sale once signed by both parties.
The two terms may be used interchangeably in certain industries.
- Learn more about the differences: Purchase agreement vs contract of sale
Can I write my own purchase agreement?
Yes, you can absolutely write your own purchase agreement!
But starting from scratch can be time-consuming and can get complicated quickly with legal language, required clauses, regional regulations, etc.
The good news is that you don’t have to start from ground zero.
PandaDoc offers pre-built templates to make your life easier, including this simple purchase agreement template. This will help speed up the entire contract process while reducing the risk of missing necessary details.
How do you format a purchase agreement?
Your purchase agreement should be well-organized, easy to read, and customized to the kind of transaction being made.
At the end of the day, the terms of the deal need to be clear to all parties involved. You shouldn’t need to decode it with a dictionary.
What essential elements should be included in a purchase agreement?
While there’s no universal layout for these agreements, they typically follow a structure like this:
- Name and contact information for buyer and seller – Include complete legal names, phone numbers, email addresses, and mailing addresses for both parties.
- Description of the item or property being sold – The details are important when you describe what’s being sold. When it comes to real estate, the full property address should be listed. For physical goods or assets, you need to include details that identify the item, such as model numbers, serial numbers, and condition.
- The price to be paid – The total purchase price, including any deposits, down payments, or financing, needs to be clearly described. This also means adding payment methods and timelines.
- The date of transfer – Write the exact date of when the ownership of whatever is being sold officially transfers from the seller to the buyer.
- Disclosures – Your agreement should outline any legal disclosures, like defects or warranties. This is often relevant in real estate and vehicle sales.
- Contingencies – There might be some conditions that need to be met before the agreement is binding, which should be clearly stated in the document. This could be financing approval, inspections, etc.
- Signatures – There should be a signature section where both parties can sign and date the agreement, making it legally enforceable.
- Optional clauses – For certain agreements that are complex in nature, you could consider adding terms for dispute resolution, governing law, or confidentiality.
If you want to make sure your formatting is both professional and comprehensive, start with a customizable template to help get the job done quickly and correctly.
Our asset purchase agreement template is helpful, especially if you’re a business needing a legally binding contract to sell an asset.
Who typically drafts a purchase agreement?
The seller is usually the one who prepares an initial draft of a purchase agreement. This is because they are the ones who typically set the terms of the sale, like price, delivery conditions, warranties, etc. They present this to the buyer for them to review and negotiate if desired.
Depending on the industry and type of deal, however, the person who drafts the agreement can vary.
- In real estate transactions, real estate agents or attorneys are commonly used to draft an agreement. They typically use a standard form that can be tailored for the specific sale. (More on this in the next section!)
- In business or asset sales, the seller may have their legal team draft the initial contract, especially if the deal is complex or involves high-value assets.
- In personal or informal transactions, like the sale of equipment or personal property, either the buyer or seller can write the agreement. (This is when using a template can be particularly useful!)
Either way, it’s a good idea to have all parties review the agreement and even consider consulting legal counsel. At the end of the day, everyone wants and needs their interests to be protected.
What is a real estate purchase agreement?
As you can probably guess from the name, a real estate purchase agreement is a legally binding contract between a buyer and seller that outlines the terms of a property sale.
These contracts include all the essential elements covered earlier, including purchase price, deposit, financing terms, and the expected closing date. It will also likely include conditions that must be met before the deal is finalized and relevant contingencies.
A real estate purchase agreement is typically created using a standardized form provided by a real estate agent, broker, or attorney, but will vary depending on your state’s laws.
Check out our land purchase agreement template for a starting point. Remember, it’s a good idea to have a legal or real estate professional review the document to make sure you check all the necessary boxes.
Want to dive deeper? Get the full breakdown here: What is a real estate purchase agreement?
When do I need a purchase and sale agreement?
A purchase and sale agreement is important if you’re involved in a transaction where any of the following conditions apply:
- The property or asset being transferred is high in value
- The terms of payment are in negotiation
- The timeline of delivery for the asset/property being sold is important
- The ownership, warranties, or responsibilities need clarification
Even if your sale is less complex in nature, having everything spelled out clearly in a legally binding contract is a good idea. This helps protect both parties and prevents any misunderstandings that can be a hassle down the road.
Want to make sure your entire contract process goes smoothly? A good contract management software might be your answer.
PandaDoc can help you create, collaborate, manage, and eSign contracts all in one place, helping you speed up deals without sacrificing accuracy.
We helped our client, Colonies, reduce the time spent getting signatures by 25%. This tech-driven real estate startup switched from a slow, manual approach to document management with PandaDoc, enhancing the tenant experience and reducing the time spent on administrative tasks.
“PandaDoc’s API integration has been a transformative tool for Colonies as we continue to scale across new properties and countries. Each lease is automatically tailored to meet regional legal requirements and property specifics, saving countless hours in document preparation and significantly reduced errors. Automating these processes within our platform has not only improved tenant satisfaction but also empowered our team to focus on expanding our reach and enhancing our offerings.”
– Thomas Guillot, VP Digital at Colonies
Final thoughts
Creating a purchase agreement might seem overwhelming, but with our free templates and this article for guidance, you can easily get started.
Want to learn how else PandaDoc can work for you? Request a free demo today.
Discliamer
PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDoc services are governed by our Terms of Use and Privacy Policy.
