Purchase agreement

Purchase agreement

A contract in which a seller agrees to transfer ownership of something, such as goods, property, a vehicle, shares or a business, and a buyer agrees to pay the agreed price. It records what is sold, the price and payment terms, when and how ownership and risk pass, and what happens if either side does not perform.

What is a purchase agreement?

A purchase agreement is the document that turns “I want to buy this” into an enforceable deal. It names the buyer and the seller, describes exactly what is being sold, fixes the price, and sets the conditions for the handover: when the buyer pays, when the seller delivers or closes, and when ownership moves from one to the other.

The same contract goes by several names, depending on the industry and on which side is speaking:

• Purchase agreement or purchase contract: the buyer’s view, common in real estate and procurement.
• Sales agreement, sales contract or sale agreement: the seller’s view of the same deal.
• Purchase and sale agreement (PSA): common for real estate and for selling a business.
• Contract of sale or agreement for sale: the legal term, used in statutes such as UCC Article 2 in the US and the Sale of Goods Act 1979 in the UK.

So what is a sales agreement, compared with a purchase agreement? Legally, nothing different. Both describe the transfer of ownership for a price. The title usually reflects who drafted it.

A purchase agreement is one of the most common types of contracts, and, like any contract, it is binding once the parties have agreed on the essential terms and the legal requirements for a valid contract are met.

How a purchase agreement works

Most purchases follow the same path, whether the object is a pallet of machine parts or a house:

1. Offer and negotiation. The seller sends a quote or the buyer makes an offer. The parties agree on the price and the main terms.
2. Signing. Both parties sign the purchase agreement. From this point, both are bound: the seller to deliver, the buyer to pay.
3. Conditions. Many purchase agreements are conditional. A home purchase may depend on the buyer’s financing and an inspection, a company purchase on regulatory approval. Until these contingencies are met or waived, either side may be able to walk away on the agreed terms.
4. Delivery or closing. The seller hands over the goods or the property, and the buyer pays the price. For real estate and businesses this is called closing.
5. Transfer of ownership. Ownership passes at the moment the agreement or the law says it does. For some assets, the transfer is documented separately, by a deed for land, a bill of sale for goods or vehicles, or a stock transfer form for shares.

What a purchase agreement contains

The details depend on what is being sold, but almost every purchase agreement covers these terms:

The more the deal is worth, the more these sections grow. A consumer buying a used car may sign two pages. An asset purchase agreement for a business can run to a hundred pages plus schedules.

Types of purchase agreements

Product purchase agreement (sale of goods)

A product purchase agreement covers the sale of physical goods: equipment, stock, raw materials, components. In the US, these contracts are governed by Article 2 of the Uniform Commercial Code, which fills in any terms the parties leave out, such as implied warranties and when risk passes. For one-off B2B deliveries, start with a sale of goods contract. For ongoing supply to resellers, a wholesale agreement sets the framework terms.

Real estate purchase agreement

A real estate purchase agreement, also called a home purchase contract or purchase and sale agreement, sets the price, the earnest money deposit, the contingencies (financing, inspection, appraisal, title), the closing date and what is included in the sale. In most US states it must be in writing to be enforceable. See the real estate sales contract template for the structure of a commercial property sale.

Business purchase and asset purchase agreement

When a company is sold, the buyer either buys its assets or its shares. In an asset purchase agreement, the buyer picks the assets and liabilities it takes over, such as equipment, customer contracts, IP and inventory. Use the asset purchase agreement template or the business asset purchase agreement template as a starting point.

Stock or share purchase agreement

In a stock purchase agreement, the buyer acquires shares in the company, and with them the whole company, including its liabilities. Stock purchase agreements are also used for investment rounds and for founders’ shares. See the stock purchase agreement for private companies and the founder stock purchase agreement.

Vehicle purchase agreement

A vehicle purchase agreement identifies the vehicle by make, model and VIN, records the mileage, the price and the condition, and states whether the vehicle is sold with or without warranty. Templates: vehicle purchase agreement, electric vehicle purchase agreement and, for boats, the boat sale agreement.

Power purchase agreement

A power purchase agreement (PPA) is a long-term contract to buy electricity from a generator, often a solar or wind farm, at an agreed price. It works more like a supply contract than a one-off sale. See the power purchase agreement template.

Purchase agreement vs purchase order vs bill of sale

Three documents that are often mixed up:

In B2B procurement, the two often work together: a framework agreement sets the general terms once, and individual purchase orders are placed under it. A purchase agreement fits better for a one-off, high-value or negotiated sale.

Is a purchase agreement legally binding?

Yes. A purchase agreement is a contract, and it is binding once the parties have agreed on the essential terms (what is sold and for what price) and the general requirements of a contract are met: offer and acceptance, consideration, capacity and a lawful purpose.

Some purchase agreements also have to be in writing and signed. Under the US statute of frauds, that applies to contracts for the sale of land and, under UCC § 2-201, to contracts for the sale of goods for $500 or more. Other countries have their own rules: in Germany, for example, a property purchase has to be notarized. Electronic signatures are valid for most purchase agreements in the US and the EU, but not for every real estate transfer.

How to create a purchase agreement

1. Pick the right type. Goods, real estate, a vehicle, shares or a business each need different terms. Start from a template for that type rather than a generic contract.
2. Describe what is sold precisely. Quantities, specifications, serial numbers, the legal description of the property, a schedule of assets.
3. Agree price, payment and delivery. Including deposits, installments, taxes and who pays for transport or closing costs.
4. Decide when ownership and risk pass. And what happens if the goods are damaged before that point.
5. Set conditions and remedies. Contingencies, inspection periods, warranties and what each side can do if the other does not perform.
6. Sign and keep it. Both parties sign, and the signed copy is stored where the people who manage delivery, payment and warranty claims can find it.

In fynk, you build purchase agreements from templates with dynamic fields for the buyer, the price and the delivery date, send them for electronic signature, and keep the signed contract with its key dates and values as metadata.

Frequently asked questions

• What is a purchase agreement in simple terms?

  It is a contract between a buyer and a seller that says what is being sold, for how much, and on what terms ownership passes. Once both sides sign, the seller has to deliver and the buyer has to pay.

• Is a purchase agreement the same as a sales agreement?

  Yes. Purchase agreement, sales agreement, purchase contract and contract of sale describe the same type of contract. The name usually depends on whether the buyer or the seller drafted it.

• Is a purchase agreement a contract?

  Yes. A signed purchase agreement is a legally binding contract. Either party can enforce it in court if the other does not perform.

• Who prepares a purchase agreement?

  Either party can. In B2B sales the seller often uses its standard terms, in procurement the buyer does. In US home sales, the agreement is usually prepared by the buyer's real estate agent or attorney on a state form.

• Can a buyer back out of a purchase agreement?

  Only on the terms the agreement allows, such as a failed contingency (financing or inspection) or a cancellation right. Backing out without such a right is a breach of contract, and the buyer may lose the deposit or owe damages.

• Does a purchase agreement transfer ownership?

  It creates the obligation to transfer ownership. The transfer itself happens at the time the agreement or the law sets, usually on delivery or at closing, and is often documented with a deed, a bill of sale or a stock transfer form.