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A purchase agreement, also known as a real estate purchase agreement and purchase and sales agreement, is a legal instrument between two or more parties for the purchase and transfer of an asset, which is typically a residential, commercial, or industrial property. The general rule of thumb on these documents is that you use a purchase agreement when the transaction exceeds $500. However, a purchase agreement may also be necessary for transactions that do not exceed $500, depending on the jurisdiction and the type of transaction.

What Is A Purchase Agreement?

A purchase agreement formalizes the details of an asset purchase. A purchase agreement establishes the terms and conditions of the transaction, including price, limitations, legal disputes, and contract governance. They can be signed digitally or using ink and entered into by all parties’ free will in the transaction.

When Is A Purchase Agreement Needed?

There are several types of purchase agreements. They can be used for the purchase and sale of almost any kind of asset. However, they are most commonly used for large transactions that exceed the normal scope of business.

For example, a business may sell computers to consumers that cost $1,000. A receipt is typically issued for this transaction since the implications of the sale, price, and limitations are different from that of a large asset or real estate purchase.

A buyer or seller may use a purchase agreement to facilitate the following types of transactions:

  • Sale or purchase of real estate
  • Large volume purchases
  • Used equipment purchases
  • Mutual preference sales
  • Motor vehicle purchases
  • And more

In general, it is wise to hire transactional lawyers to help you draft the first iteration of the purchase agreements, which can also make modifications during the negotiation process. This strategy prevents legal mistakes from being made while remaining compliant with the governing local, state, and federal laws.

See Purchase Agreement Pricing by State

What Happens After Signing A Purchase Agreement?

After signing a purchase agreement, you then finalize the sale. How you structure the closing ultimately depends upon the terms and conditions set forth in the agreement. Ensure that you read your requirements carefully to execute the deal as anticipated fully.

Here is what generally happens after the signing of a purchase agreement:

  • Fund escrow with an escrow company to handle the paperwork if necessary
  • Confirm the funding with the company or listing agent for real estate transactions
  • Hire third-party experts, such as licensed inspectors, to evaluate the condition of the asset or property before escrow release
  • File a report with both the buyer, seller, and other relevant third-parties to confirm the condition of the asset or property
  • Sign the escrow, loan, promissory, and deed to close on the asset
  • Buyer releases escrow to the seller, which signifies the end of this part of the transaction

It is not uncommon for several US states to allow for a grace period to rescind a loan required for the purchase. This grace period may affect escrow release since the escrow company may wait until it passes. Thereafter, the transaction is completely closed.

What Is The Difference Between A Real Estate Sales Agreement And Purchase Agreement?

While a purchase agreement can be used for any large transaction, a real estate sales agreement is used to sell and transfer residential, commercial, or industrial property.

Different names for a real estate sales agreement may include:

The difference between a real estate sales agreement and a purchase agreement may also consider the role of the person offering it. The seller uses a real estate sales agreement, while the buyer uses a real estate purchase agreement to present an offer.

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Parts Of A Purchase Agreement

While the asset being sold under a purchase agreement may vary from transaction-to-transaction, the sections are generally the same. Essentially, there are specific elements that you must include for it to be lawful and enforceable according to the governing jurisdiction. Ensure that you contain the following features in your purchase agreement at a minimum, although additional terms may be necessary depending on the jurisdiction and the specifics of the agreement.

Article 1: Recitals

You must include the names, business names, and addresses of the parties involved, the date that the agreement goes into effect, and a general acknowledgment and agreement to the terms contained therein. If the agreement is for a real estate transaction, be sure to address tenancy if applicable.

Article 2: Sale Inclusions and Exclusions

List the specific assets that you are transferring and details that describe them as such. If you are buying or selling property, list all sales inclusions and exclusions in the transaction, as well as inspection requirements, appraisals, financing, and titling.

Article 3: Disclosures

The seller must disclose information about the asset or property that could impact the value or sale. Examples of disclosures should include lead hazards, well locations, asbestos hazards, and other pertinent facts.


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Article 4: Pricing Terms and Conditions

Next, you will want to address how much the asset or property will cost as well as the terms and conditions surrounding the price. You can also include how the structure of the deal will be made, including cash payments, loan options, closing costs, and more. You should also have the dates of each transaction as well.

Article 5: Possession Terms and Conditions

This section describes how and when the transfer and possession of the asset or property will go. For example, describe when the keys of the property will be delivered for real estate transactions.

Article 6: Default Clause

Buyers and sellers must offer each other the opportunity to cancel the purchase agreement when a provision goes unsatisfied. For example, not paying for the transaction according to the terms could result in the contract entering into default. The default clause should address what steps or actions should be taken if a default occurs.

Article 7: Dated Signatures from All Parties

For a purchase agreement to be valid, it must be executed or signed by all parties. Create a separate date and signature line for each signing individual since it is possible that the signing could occur on different dates.

How To Write A Purchase Agreement

While there are numerous purchase agreements available for reuse online, there are problems with this method. First, they were created for another business or person, and the particulars may not entirely meet your situation’s needs. Start by making a list of the essential parts of the transaction to account for the agreement.

Then you will want to hire property lawyers to draft the first iteration of the purchase agreement. You can then use the document as a jumping-off point when it comes to the negotiation of the transaction’s finalization. As the deal becomes more evident, you can return to your attorney, who can provide legal advice and make modifications to the first draft of the agreement.

Preparing A Purchase Agreement

Since purchase agreements affect your legal rights, you should discuss the drafting and execution of the deal with transactional lawyers licensed to practice in your state. You should also consider working with a legal professional that has experience in the specific area of practice for the type of contract you are drafting. For example, transactions involving real estate should be prepared by real estate lawyers, especially if the transaction is complex.

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Faryal A. on ContractsCounsel
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February 23, 2023

Faryal A.

Attorney/Counsel
Free Consultation
Houston
2 Yrs Experience
Licensed in TX
University of Houston

Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.

Michael M. on ContractsCounsel
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Member Since:
September 10, 2022

Michael M.

Principal
Free Consultation
Los Angeles, CA
37 Yrs Experience
Licensed in CA
NYU

www.linkedin/in/michaelbmiller I am an experienced contracts professional having practiced nearly 3 decades in the areas of corporate, mergers and acquisitions, technology, start-up, intellectual property, real estate, employment law as well as informal dispute resolution. I enjoy providing a cost effective, high quality, timely solution with patience and empathy regarding client needs. I graduated from NYU Law School and attended Rutgers College and the London School of Economics as an undergraduate. I have worked at top Wall Street firms, top regional firms and have long term experience in my own practice. I would welcome the opportunity to be of service to you as a trusted fiduciary. In 2022 I was the top ranked attorney on the Contract Counsel site based upon number of clients, quality of work and top reviews.

Mark F. on ContractsCounsel
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Mark F.

Attorney
Free Consultation
Silicon Valley, CA
43 Yrs Experience
Licensed in CA
University of California Hastings College of Law

International-savvy technology lawyer with 35years+ in Silicon Valley, Tokyo, Research Triangle, Silicon Forest. Outside & inside general counsel, legal infrastructure development, product exports, and domestic & international contracts for clients across North America, Europe, and Asia. Work with Founders to establish startup and continuous revenue, sourcing and partnering with investors to attract funding, define success strategy and direct high-performing teams, advising stakeholders and Boards of Directors to steer company growth.

Michael S. on ContractsCounsel
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Michael S.

Attorney
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Philadelphia, PA
34 Yrs Experience
Licensed in PA
Temple University School of Law

Real estate and corporate attorney with over 30 years of experience in large and small firms and in house.

David A. on ContractsCounsel
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David A.

Attorney
Free Consultation
Chicago, Illinois
19 Yrs Experience
Licensed in IL
Chicago Kent College of Law

David Alexander advises clients on complex real estate transactions, including the acquisition, disposition, construction, financing and leasing of shopping centers, office buildings and industrial buildings throughout the U.S. An experienced real estate attorney, David reviews, drafts and negotiates all manner of retail, office and industrial real estate agreements, including purchase and sale agreements, construction contracts, leases and financing documentation.

Alex P. on ContractsCounsel
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Alex P.

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Los Angeles
25 Yrs Experience
Licensed in CA
Pepperdine Law School

Managing partner at Patel & Almeida and has over 22 years of experience assisting clients in the areas of intellectual property. business, employment, and nonprofit law.

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Business Contracts

Purchase Agreement

Washington

Asked on Oct 31, 2023

What are risks without a purchase agreement?

I am considering purchasing a business and have been asked to sign a purchase agreement. However, I am unsure if this is necessary and would like to understand the potential risks of not having a purchase agreement in place. I want to ensure that I am making a well-informed decision and have the necessary protections in place.

Merry A.

Answered Nov 28, 2023

Purchasing a business without a binding agreement would be extremely risky (and, I'm sorry to be blunt, but extremely foolish). For example, without an agreement in which the seller is responsible for debts incurred prior to the sale, creditors could come after you.

Read 1 attorney answer>

Real Estate

Purchase Agreement

New York

Asked on Mar 29, 2021

Who has the lawyer draft the purchase agreement for a for sale by owner?

I am selling my home and am being asked to provide an agreement.

Jane C.

Answered Mar 29, 2021

Typically, the seller has a lawyer draft the purchase agreement. Disclaimer - This information is provided for general informational purposes only. No information contained in this post should be construed as legal advice and does not establish an attorney-client relationship.

Read 1 attorney answer>

Commercial Real Estate

Purchase Agreement

Washington

Asked on Oct 31, 2023

Are purchase agreements confidential?

I recently made an offer to purchase a commercial property and the seller has asked me to sign a purchase agreement. I am unfamiliar with the terms of the agreement and want to make sure that it is kept confidential. I am concerned about the potential for the details of the purchase agreement to be publicly disclosed and want to know if purchase agreements are confidential.

Merry A.

Answered Nov 14, 2023

I hope that you used the assistance of a WA State commercial real estate attorney to advise you in the writing and presentation of your offer to purchase a commercial property, as these can be extremely complicated. (Or, at the very least, I hope you were represented by an experienced and knowledgeable buyer's agent). To my knowledge, this type of PSA agreement is not required to be confidential unless you included that language in your offer. Please be aware that once the sale closes, the amount of the purchase price will be public information, in county records.

Read 1 attorney answer>

Real Property

Purchase Agreement

California

Asked on Oct 31, 2023

What happens if a purchase agreement expires?

I recently entered into a purchase agreement for a property with a seller. The agreement had a specific timeline for when the purchase needs to be completed, but that timeline is quickly approaching and the purchase has not yet been completed. I am unsure of what happens if the purchase agreement expires and I would like to get more information from a lawyer on the potential implications of the agreement expiring.

Sarah S.

Answered Nov 3, 2023

As long as you have an accepted offer the contract is valid and enforceable, regardless of the purchase agreement date; However, if there is a termination clause in the agreement or any language that might trigger termination after expiration, then the contract might be invalid. You need a lawyer to thoroughly review the contract.

Read 1 attorney answer>

Contracts

Purchase Agreement

Pennsylvania

Asked on Oct 4, 2021

Purchased monitor Camera From Lorex technologhy.com valued $1,200 , only delivered 6 out of 10 Camera , usung credit card , happened A month Shi , now payment in pending , It dosen’t stay long , can We Dispute It ?

Website purchased From LorexTechlologhy.com Usung credit card , send to Address in Philadrlphia PA

Samuel R.

Answered Oct 6, 2021

Yes you can dispute this. Have you contacted the company and notified your credit card company?

Read 1 attorney answer>
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Recent Project:
A purchase agreement for a local business amounting to 1,400,000
Location: Maryland
Turnaround: Over a week
Service: Drafting
Doc Type: Purchase Agreement
Number of Bids: 3
Bid Range: $999 - $3,000

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Recent Project:
Review purchase agreement for company sale
Location: Texas
Turnaround: A week
Service: Contract Review
Doc Type: Purchase Agreement
Page Count: 45
Number of Bids: 5
Bid Range: $700 - $2,500
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