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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.
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 online 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.
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:
- Purchase agreement for house
- Real estate purchase contract
- For sale by owner purchase agreement
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.
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.
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 .
ContractsCounsel Will Help You Prepare a Purchase Agreement
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Meet some of our Purchase Agreement Lawyers
Matan is an experienced M&A, corporate, tax and real estate attorney advising closely held businesses, technology start ups, service businesses, and manufacturers in purchases, sales, and other exit strategies. Matan works with founders and first-and-second generation owners to strategically transition businesses.
I am a business law attorney with over 10 years’ experience and a strong background in information technology. I am a graduate of the University of California Berkeley, a member of the Illinois bar and a licensed lawyer (Solicitor) of England and Wales. I actively partner directly with my clients or indirectly, as Of Counsel, to boutique law firms to streamline business practices and manage legal risks by focusing on essentials such as - business contracts, corporate structure, employment/independent contractor agreements, website terms and policies, IP, technology, and commercial related agreements as well as business risk and compliance guidance.
Engaging Transactions Attorney with extensive experience in commercial real estate / project finance that possesses a winning blend of subject matter expertise, skill in client relationship management, and practical experience. Leverages a unique mix of legal, strategic, and analytical expertise, consistently meeting and surpassing client expectations. Specialties: Commercial Real Estate Law, Contract Negotiation, Procurement, Lease/Buy/Sell Transactions, Business Consultations, Team Leadership, and Economic Development
Miami-based duly licensed attorney and customs broker with significant experience in various types of supply chain business agreements, as well as experience in entertainment law.
I am a New Jersey licensed attorney and I have been in practice for over seventeen years. My practice mainly consists of representing public entities (municipalities, school boards, etc) and businesses, both small and large. In that capacity, much of work consists of drafting, reviewing and revising contracts.
Jennifer is an experienced business law attorney who has worked with many startups as well as established corporations. With a strong background in contract creation and review, she will be able to ensure you and your business interests are always protected.
I am a corporate lawyer with expertise working with small businesses, venture capital and healthcare. Previously, I worked at large law firms, as well as head attorney for companies. I graduated from Harvard College and University of Pennsylvania Law School. I speak 5 languages (Spanish, French, Italian and Russian, plus English), visited over 60 countries, and used to compete in salsa dancing!