Purchase Agreement Templates

A 101 on Drafting, Creating, and Terminating Purchase Agreements

Whether you are buying or selling a product or property, a purchase and sale agreement is vital as it outlines the terms and conditions of the transaction as well as indicate the consensual signing or proof of the accord. The purchase agreement makes the entire transaction legally binding.

In this guide, we will offer a 101 on the basics of a purchase agreement and how you can navigate the drafting process.

What is a Purchase Agreement?

A purchase agreement is a legally binding contract between a buyer and a seller outlining the terms and conditions of a transaction. It includes the item's description for sale, purchase price, payment terms, delivery details, and any additional contingencies or disclosures.

A purchase agreement serves as proof of the agreed-upon terms and protects the rights of both parties involved. Usually, signing the agreement enforces undeniable validation of purchase, consent, and the process. It might be a wet signature or an electronic/digital signature.

Components of a Purchase Agreement

When drafting a purchase agreement, include specific elements to ensure its efficacy and fairness.

1. Identify the Parties: Clearly state the names and contact information of the buyer and seller involved in the transaction.
2. Describe the Item: Provide a detailed description of the item being sold, including its condition, quantity, quality, and other relevant specifications.
3. Establish the Purchase Price: Clearly state the agreed-upon purchase price and specify any additional costs or taxes included.
4. Outline Payment Terms: Specify the payment method, such as cash, check, or electronic transfer. Indicate any down payment, instalment plan, or financing arrangements.
5. Include Contingencies: Consider including contingencies, such as financing, inspections, or appraisals, to protect the interests of both parties. Also provides an exit strategy if certain conditions go amiss.
6. Disclosures: Disclose any known defects, encumbrances, or potential issues with the sellable item to ensure transparency and avoid future disputes.
7. Define Delivery and Acceptance: Clearly state the terms, including the date, location, and method. It is also safe to convey the buyer's rights to inspect and accept the item.
8. Specify Governing Law: Determine the jurisdiction whose laws govern the purchase agreement.
9. Include Signatures: Ensure both the buyer and seller sign the agreement document along with the date of signing. Notarization may become a requirement for certain types of transactions. 

Disclosures & Contingencies

Disclosures and contingencies play a crucial role in purchase agreements, ensuring transparency and protecting the rights of both parties.

1. Disclosures: Sellers are legally obligated to disclose any known defects, issues, or encumbrances related to the item for sale. It can include structural problems, liens, past repairs, or environmental hazards. Full disclosure helps buyers make informed decisions.
2. Contingencies: Contingencies are unavoidable conditions for the purchase agreement to proceed. Some common contingencies include financing, appraisal, inspection, or selling of a buyer's existing property. And if these conditions are not satisfied within a specified timeframe, the agreement is terminated.

Purchase Agreement Template for Real Estate

When dealing with real estate transactions, purchase agreement templates become even more crucial. The complexity and high stakes involved require careful attention to detail.

1. Property Description: Provide a detailed and accurate description of the property, including address, legal description, boundaries, and any included fixtures or personal property.
2. Terms and Conditions: Outline specific terms, such as the purchase price, financing arrangements, and closing date. Mention any contingencies related to inspections, appraisals, or title searches.
3. Title and Liens: Address the issue of title and liens. State that the seller agrees and has the legal right to sell the property. It also states that the seller is free from any encumbrances or claims.
4. Closing Costs: Specify which party is responsible for closing costs, such as transfer taxes, title insurance, attorney fees, and recording fees.
5. Default and Remedies: Define the consequences and remedies in case of default by either party. Include the right to terminate the agreement, retain earnest money, or seek legal action.

Also know about

Lease Agreement Templates

Addendum vs. Amendment

How to Create a Purchase Agreement?

Here are two of the most used options to create a purchase agreement:

Option #1 – Templates. Utilize pre-made purchase agreement templates available online or through eSignature providers. These templates provide a basic structure. You can customize it to suit your specific needs. You can also make your own template on Microsoft Word or any other editor and then easily transfer or upload the document to get it signed electronically. 

Electronic signature tools let you edit or place fillable fields onto your draft. More advanced tools help you send, track, and receive the signed agreement. It reduces the hassle of paper copies, storage, and the need for the parties' physical presence. 

Most of the electronic signatures are secure. Some eSignature providers offer a timestamped, certificate record of the entire transaction for compliance needs.

If you are a real estate agent or agency that frequently sends agreements for signing, consider using your documents as a template, so you can reuse them whenever necessary.

Option #2 – Leverage the services of an attorney. Seek legal advice from an attorney specializing in contract law to ensure your purchase agreement complies with local laws and meets your unique requirements.

If you wish to finish the process electronically, you can opt for a tool that provides proof of compliance and is accepted by courts.

How to Terminate a Purchase Agreement?

Sometimes, unforeseen circumstances or issues may arise, leading to the termination of a purchase agreement.

1. Review the Agreement: Carefully examine the terms and conditions of the agreement. Understand the grounds for termination and the steps to follow.
2. Follow Termination Procedures: Adhere to the termination procedures outlined in the purchase agreement. It may include providing written notice to the other party within a specific timeframe.
3. Negotiate and Mediate: If both parties agree to the termination, negotiate to settle any potential disputes. When ready, decide on the terms of termination.
4. Seek Legal Advice: If disagreements arise or termination becomes complicated, consult an attorney to understand your rights and obligations under the purchase agreement and applicable laws.

What is the Difference Between a Purchase Agreement and a Bill of Sale?

Both documents are in the context of a sale. But there are significant differences between a purchase agreement and a bill of sale:

1. Purchase Agreement: A purchase agreement is a contract that outlines the terms and conditions of the sale. It is typically used during the negotiation and agreement stage before the actual transfer of ownership takes place.
2. Bill of Sale: A legal document serving as proof of the transfer of ownership from the seller to the buyer. It is typically after the purchase agreement has been executed and serves as evidence of the completed transaction

How Long is a Purchase Agreement Valid?

The validity of a purchase agreement depends on several factors, including local laws, the type of transaction, and the terms specified within the document. Generally, purchase agreements are valid until the transaction is complete, canceled, or terminated according to the agreed-upon terms.

Tax Implications for Items Sold Person-to-Person?

The tax implications of person-to-person sales vary depending on the jurisdiction and the nature of the transaction. Proper guidance from a tax professional is absolutely critical.

However, in many cases, taxes may apply to selling items, such as vehicles or real estate. So, research the applicable tax laws and consult with a tax professional to ensure compliance.

FAQs

Q: Can I modify a purchase agreement template to suit my needs?

Yes, purchase agreement templates are often customizable, allowing you to add, remove, or modify clauses to align with your requirements. However, it is crucial to ensure that any modifications are legally sound. Do not compromise the overall integrity of the agreement.

Q: Can I send a purchase agreement for signing through an electronic signature tool?

Yes, you can send the agreement for signing directly from an electronic signature tool. Or, use a tool that integrates into your workflow, such as Microsoft Word, Microsoft Outlook, or others.

Choose a service that best fits your needs, including compliance, proof of signing, identity, time, and content. You can also save your document as templates for future reuse.

Q: Is a purchase agreement the same as a sales contract?

Yes, a purchase agreement and a sales contract are interchangeable. They refer to the same type of legal document that outlines the terms and conditions of a sale.

Q: Can a purchase agreement be enforced in court?

Yes. A properly executed and legally binding purchase agreement is enforceable in court. Only if one party fails to meet its obligations as outlined in the document. However, seek legal advice to navigate the enforcement process effectively.