What is a Purchase and Sale Agreement? Know the Basics (2023)

A purchase and sale agreement, also called a sales and purchase agreement or a purchase and sales contract, is a legally binding document that parties in a transaction use to stipulate the terms and conditions that will guide the sale and transfer of goods or property.

A key thing about a purchase and sale agreement is that it does not transfer the property or goods that the parties are negotiating. What it does is create an obligation for the seller to sell, and an obligation for the buyer to buy.

Transactions that use purchase and sale agreements, such as real estate transactions, are complex transactions that may span into weeks and involve lots of processes and stages. These agreements provides a clear roadmap so parties know what they can expect at each point.

A purchase and sale agreement is not the same as a purchase agreement. A purchase agreement is the final document used to transfer a property from the seller to the buyer, while a purchase and sale agreement specifies the terms of the transaction. Parties will sign a purchase agreement after both parties have complied with the terms of the purchase and sale agreement.

A purchase and sale agreement is also not a purchase order. A purchase order is a document that contains a list of supplies or products a buyer wants to buy from a seller.

What is the purpose of a purchase and sale agreement?

A purchase and sale agreement is used to document the parties’ intentions and the terms they have agreed will govern the transaction. You can include specific terms like the product or property, the price of the product or property, conditions for the delivery of the product, and the date of product delivery.

Writing these things down protects each party’s interests by ensuring that there is a legally binding agreement they can resort to if there is a dispute. It also protects any deposit the buyer makes on the transaction and secures their commitment.

In real estate transactions, parties use these agreements to make provisions for the buyer to inspect the property. It also details any defects the property has that are known to the seller. The contracts usually contain conditions that could lead to the termination of the agreement; for example, if the buyer is not satisfied after inspecting the property.

When do I need a purchase and sale agreement?

We mentioned earlier that they are commonly used in real estate transactions; however, you can also use them in other types of property transactions, like vehicle sales.

Purchase and sale agreements are also used in the transactions of company stock. Parties can also use them where a business is acquiring another business.

In addition, you may use it when purchasing large-volume and expensive materials from a supplier when the supply will span over a period of time. This can be useful for routine purchases of these types of supplies since it helps suppliers and purchasers keep an estimate of demand and cost.

Elements of a purchase and sale agreement

To write a purchase and sale agreement, you’ll need to include the following elements:

  • Identity of the parties: Include the names of the parties in the transaction. Parties in the agreement may be individuals or organizations. Ensure that you write their full legal names and their contact information.
  • Description of the property or products:Describe the property or the product in absolute detail. Make sure that the description identifies the property without any ambiguity. If the subject matter is a product, state the quality of the product and specifications.
  • The purchase price:State the price the parties have agreed on for the purchase of the property or product.
  • Type of payment:State how the buyer will pay the seller for the product or property. Payment can be in cash, shares, financing, etc.
  • Terms of delivery:Write when and how the seller will supply the product. In the case of a property transaction, it would instead be how and when the seller will transfer property ownership.
  • Closing date for the sale:State the date the parties will come together to close the sale. Closing involves the signing of the document to transfer the property from the seller to the buyer.
  • Definition of terms:Include the definition of the meaning of key terms used in the agreement. Parties may use some terms differently or may want to limit or expand the meaning of certain words. A definition section will help you to do that.
  • Warranties: Detail any warranties that the seller is making in the agreement. A seller in an agreement for the sale of goods may make certain warranties as to the quality of the product. In a real estate transaction, a seller might make warranties on ownership and possession of the property.
  • The deposit amount:Agree on the amount of money the buyer will pay as deposit or earnest moneyand where it will be held in escrow. The deposit is put in an escrow account pending when parties complete the transaction or if the transaction falls through.
  • Dispute resolution:Decide how parties will resolve any dispute relating to the agreement. Parties can opt for arbitration or mediation.
  • Contingencies:State any conditions that any party must meet before the transaction can be completed. For example, you can provide an inspection contingency that will allow the buyer to back off if, during the inspection, they discover something about the property that they cannot overlook. Other contingencies can be financial, title, or appraisal.
  • Penalty:Agree on the consequences if any party defaults or fails to follow through with the agreement without a valid reason.

Managing a purchase and sale agreement

To manage your agreements efficiently, you need to pay close attention, as the stakes are often high. Various transactions are rarely the same. A purchase and sale agreement is also not the final document, so parties can (and usually will) renegotiate some terms before closing the transaction.

You’ll need to monitor the agreement closely to ensure that parties follow the terms or to discover when you may renegotiate more favorable terms. Often, parties may use an addendum to change the terms of the agreement or to add additional terms.

You can use an addendum to change the closing date, inspection periods, or purchase price. For instance, in a business purchase transaction the buyer might discover that the business is worth a lot less than the price they offered because it has a high employee turnover. The buyer may then decide to continue with the transaction but will offer a lower price. Parties will renegotiate on price and use an addendum to modify the new cost. You may have several addenda to one purchase and sale agreement.

Using contract lifecycle management software to streamline agreements

Managing a purchase and sale agreement is more challenging if your organization does not use a contract lifecycle management (CLM) software in managing your contracts. This type of agreement is unique in that it facilitates a transaction.

Any lack of contract visibility, poor communication between stakeholders, or inefficient tracking of contract key deadlines—which are common in the traditional method of contract management—will adversely affect the outcome. This is why innovative businesses use contract lifecycle management software to manage their purchase and sale agreements, as well as their other business contracts.

Using a contract management software will automate your contract workflows, which will help you create agreements faster, communicate efficiently with both internal and external stakeholders, and stay on top of your obligations and key timelines.

Master purchase and sale agreement with Ironclad CLM

Ironclad’s CLM is an enterprise-grade contract management software designed to handle all contract management lifecycle stagesfor organizations of all sizes.

With Ironclad’s CLM, you can increase your contracting efficiency by creating templates of workflows for your organization’s purchase and sale agreement. You can save time and resources by using Ironclad’s central platform for creating, approving, revising, editing, negotiating, and redlining your purchase and sale agreement.

Ironclad’s central repositoryensures you and your team can have access to and track your purchase and sale agreements without hassle. Our CLM software can also help you create an addendum to your purchase and sale agreement conveniently if it’s needed.

Table of contents

  • What is the purpose of a purchase and sale agreement?
  • When do I need a purchase and sale agreement?
  • Elements of a purchase and sale agreement
  • Managing a purchase and sale agreement
  • Using contract lifecycle management software to streamline agreements
  • Master purchase and sale agreement with Ironclad CLM
  • Contract types


What is the agreement of purchase and sale? ›

An Agreement of Purchase and Sale is a written contract between a seller and a buyer for the purchase and sale of a particular property. In the Agreement, the buyer agrees to purchase the property for a certain price, provided that a number of terms and conditions are satisfied.

What are the basics of sales agreement? ›

Elements of a sales agreement

Description of goods, services, or property being purchased. Payment amount, dates, and method. Liability of each party in the case of loss, damage, or delivery failure. Ownership information, such as when ownership formally transfers to the buyer.

What are the key terms in a purchase agreement? ›

Among the terms typically included in the agreement are the purchase price, the closing date, the amount of earnest money that the buyer must submit as a deposit, and the list of items that are and are not included in the sale.

What does purchase agreement mean in real estate? ›

What Is A Purchase Agreement? A real estate purchase agreement spells out the terms under which a buyer and seller agree to engage in a real estate transaction. Signing a purchase agreement effectively places both the buyer and seller (as well as the property in question) “under contract.”

What is the difference between an offer to purchase and a purchase and sale agreement? ›

An offer is a written proposal to buy a property with conditions baked in. The buyer's agent helps to write it up and delivers it to the seller's agent. Purchase agreements are an actual agreement between the buyer and the seller also sometimes called a real estate contract.

What are the basic duties of a seller in a sales contract? ›

The seller's obligation under the UCC is to make a timely delivery of conforming goods. For each element of the duty—timely, delivery, conforming goods—the parties may agree in their contract.

What are the five essential elements that must exist for a real estate sales contract? ›

Required Elements of a Real Estate Contract

To establish legality, a real estate contract must include a legal purpose, legally competent parties, agreement by offer and acceptance, consideration, and consent.

What are the 6 characteristics of a contract of sale? ›

  • NOMINATE AND PRINCIPAL (legal name and nature) Nominate – the law provides a specific name. ...
  • CONSENSUAL (important characteristic) Perfected by mere consent.
  • BILATERAL AND RECIPROCAL (number of parties) ...
  • ONEROUS AND COMMUTATIVE (consideration)

What are the four elements of an agreement? ›

The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

What are the 3 terms of agreement? ›

Typically, contract terms can be defined into three categories: conditions, warranties, or innominate terms.

What are the two key elements of an agreement identify? ›

To be legally enforceable, an agreement must contain all of the following criteria: An offer and acceptance; Certainty of terms; Consideration; An intention to create legal relations; Capacity of the parties; and, Legality of purpose.

How do you use a purchase agreement? ›

Content of a purchase agreement
  1. The identity of the buyer and seller.
  2. A description of the property being purchased.
  3. The purchase price.
  4. The terms as to how and when payment is to be made.
  5. The terms as to how, when, and where the goods will be delivered to the purchaser.
  6. Signatures of both parties.

Is a purchase agreement necessary? ›

You need a real estate purchase agreement if you are selling or buying a house. Depending upon your situation, the person who provides the real estate purchase agreement may vary. You generally have two options when selling a home: Represented by a real estate agent.

Is there a difference between purchase agreement and contract? ›

Purchase orders are commercial documents while contracts are legally bound documents. Purchase orders do not become legally binding documents until they are accepted by the seller whereas a contract is a legal document from the start.

What happens after the purchase agreement is signed? ›

Once you have signed the purchase agreement, you will need to apply for a loan. The loan application will ask for your financial information, including your income, debts, and assets. The lender will also pull your credit report. After you have applied for the loan, the lender will underwrite the loan.

Which two contingencies are commonly included in your purchase agreement? ›

Typically purchase agreements are contingent on – inspection contingency and financing contingency. The inspection contingency clause in a purchase agreement requires the buyer to inspect the property before signing the contract.

Which of these is not included in a purchase and sales agreement? ›

Which of the following is not an element that should be included in every purchase agreement? Explanation: The commission rate payable to the listing agent is discussed in the listing agreement, not in the purchase agreement.

What is the main responsibility of a seller? ›

A seller helps customers and then offers the best solution in regards to the products being sold. They also explain to the customers how a certain product works when necessary, as well as explain the current deals and discounts.

What are the obligations of the seller and the buyer in a sales contract? ›

The buyer agrees to make a purchase on a specific timeline, and the seller agrees to provide the goods and services on or by that date. The buyer agrees to pay a certain price for the goods, and the seller agrees to accept that price.

What are the obligation of the seller? ›

In a shipment contract, the seller has four duties: (1) to deliver the goods to a carrier; (2) to deliver the goods with a reasonable contract for their transportation; (3) to deliver them with proper documentation for the buyer; and (4) to promptly notify the buyer of the shipment (UCC, Section 2-504).

What are the 7 essential elements of a contract everything you need to know? ›

There are 7 essential elements an agreement must have to be considered a valid contract. The elements of a contract include identification, offer, acceptance, consideration, meeting of the minds, competency and capacity, and legality. Preferably, the document will be in writing.

What are the 6 elements required for a valid contract? ›

6 Essential Elements of a Contract
  • Offer.
  • Acceptance.
  • Awareness.
  • Consideration.
  • Capacity.
  • Legality.

What are 7 the specific elements of a valid contract? ›

For a contract to be valid and recognized by the common law, it must include certain elements— offer, acceptance, consideration, intention to create legal relations, authority and capacity, and certainty. Without these elements, a contract is not legally binding and may not be enforced by the courts.

What are the rights of unpaid seller? ›

1.Right of possession/ lien

If the buyer fails to pay the price within the decided time, then unpaid seller has the right to keep the goods in his possession and he can refuse to deliver the goods until the due payment is paid.

What are three basic features of a contract? ›

Elements of a Contract
  • Offer - One of the parties made a promise to do or refrain from doing some specified action in the future.
  • Consideration - Something of value was promised in exchange for the specified action or nonaction. ...
  • Acceptance - The offer was accepted unambiguously.

What are the 5 characteristics of a valid contract? ›

What are the 5 characteristics of a valid contract?
  • The offer (terms of the offer) One party must make an offer to another. ...
  • Acceptance of an offer. ...
  • The capacity of the parties involved. ...
  • Some form of consideration. ...
  • All parties intend to enter the agreement.

What are the 3 most important parts of an agreement? ›

There are three key elements of a binding contract, and they are what are known as the offer, the acceptance, and the consideration.

What are the 10 essentials of a valid contract? ›

Essential Elements of a contract:
  • Offer And Acceptance. A Contract always involves two or more parties where one proposes and other accepts. ...
  • Lawful Consideration. ...
  • Intention Of Giving Rise To Legal Obligations. ...
  • Capacity. ...
  • Free Consent. ...
  • Lawful Object. ...
  • Agreements Not Expressly Declared Void. ...
  • Possibility Of Performance.

What is unenforceable contract? ›

What Makes a Contract Unenforceable? If a contract is deemed unenforceable, the court will not compel a party to act or compensate the other for not fulfilling the contract terms. While the elements of an enforceable contract (offer, acceptance, consideration) seem simple, there are strict standards for enforceability.

What is an agreement in layman's terms? ›

Agreement is the state or act of agreeing, meaning coming to a mutually approved arrangement. Agreement is also used to mean a deal in which all parties accept the conditions or a unity of opinion.

What are the two types of agreement? ›

Express and implied agreements

Thus, an express agreement shall be an agreement wherein the promise is express, and an implied agreement shall be an agreement wherein the promise is implied.

What do agreements include? ›

An agreement, or a contract, says what you and the other person or organisation have agreed to do. It is a written list of the promises you have made. The best form of contract is written on paper and signed by each party.

What are the important details of an agreement? ›

Essential elements of a contract

an offer. an acceptance. an intention to create a legal relationship. a consideration (usually money).

Which six primary elements must a contract have to be mutually binding? ›

The parties to the contract must have capacity to contract; both parties must state the mutual assent to be bound to the contract terms; both parties must give consideration; the contract must have a lawful purpose; the terms of the contract must be reasonably certain and clear; and the contract must be in a form ...

What is a purchase and sale agreement Massachusetts? ›

The purchase and sale agreement is the contract between the buyer and seller of real estate. It sets out the obligations of each party from the time the property is taken off the market to the closing. A standard form agreement is used in most residential real estate transactions in Massachusetts.

Is a purchase agreement final? ›

After the buyer and seller sign that purchase contract, it's a binding agreement,” Oleynick says, “However, it's important to ask your Realtor or closing agent about the specific process in your state, as it can vary depending on where you live.”

Can a buyer change their mind after signing a contract? ›

Backing out after signing the purchase and sale agreement

The homebuyer can back out of a purchase even after you've signed a purchase and sale agreement (PSA). The ramifications of a buyer walking away from the agreement vary based on how the contract was written and the reason for backing out.

Can a buyer pull out after signing contracts? ›

A buyer can pull out of a house sale after contracts have been exchanged, but there are legal and financial consequences to this. If a buyer pulls out of a house sale after contracts have been exchanged, they will forfeit their deposit and may be liable for other costs incurred by the seller.

Can a seller back out of a purchase agreement in Massachusetts? ›

A seller will win very few cases if the buyer has met all of their legal obligations in the agreement. So a seller cannot back out of an accepted offer without legal consequences if the buyer chooses to pursue their legal rights. Suing a seller for a breach of a contract is common in real estate sales.

Can a buyer back out of a purchase agreement in Massachusetts? ›

A buyer can back out of a real estate transaction before or at closing. Technically they can back out all the way up to money being disbursed. In Massachusetts a sale is not complete and monies and keys are not distributed until the deed is recorded.

Who signs the purchase and sale agreement first in Massachusetts? ›

Massachusetts Purchase and Sale Review FAQ

The tradition and custom in Eastern Massachusetts is for the Buyer to sign it first. Legally speaking, this may not matter as it is not a valid contract until both parties sign.

What contingency is most risky in real estate? ›

This house sale contingency clause allows the buyer to walk away from their purchase agreement if they cannot sell their home when they expect. The home sale clause is the least acceptable of all the real estate contract contingencies. A home sale contingency creates tremendous risk for a seller.

What are 3 examples of contingencies? ›

A contingency is a potential occurrence of a negative event in the future, such as an economic recession, natural disaster, fraudulent activity, terrorist attack, or a pandemic.

What are the 4 contingencies that you should put in the purchase and sale agreement? ›

Some of the most common real estate contingencies include appraisal, mortgage, title and home inspection contingencies. Many home buyers also include a sale of prior home contingency, which allows them to withdraw an offer if they are unable to sell their current home within a specified timeframe.

How legally binding is a purchase agreement? ›

A purchase agreement is a legal document that is signed by both the buyer and the seller. Once it is signed by both parties, it is a legally binding contract. The seller can only accept the offer by signing the document, not by just providing the goods.

How do you write a simple purchase agreement? ›

At its most basic, a purchase agreement should include the following:
  1. Name and contact information for buyer and seller.
  2. The address of the property being sold.
  3. The price to be paid for the property.
  4. The date of transfer.
  5. Disclosures.
  6. Contingencies.
  7. Signatures.
Feb 15, 2022


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