Key Takeaways

  • A purchase price agreement sets detailed terms for buying/selling assets, often used in real estate and complex transactions.
  • It covers essential components like parties, payment terms, contingencies, delivery, warranties, and legal remedies.
  • Drafting must address risk allocation, dispute resolution, and compliance with relevant laws.
  • Digital tools and electronic signatures have made creating, signing, and storing purchase agreements more efficient.
  • Customization and clarity in these agreements help avoid misunderstandings and ensure enforceability.

A purchase price agreement specifies that one party will purchase an asset from another party for a specific price. These agreements are commonly used for real estate transactions. They can also be very similar to sales agreements.

Facts About Sales Agreements

Sales agreements are one of the most common types of contracts, and they can go by many different names:

  • Sales contract.
  • Sale of goods contract.
  • Purchase agreement.
  • Purchase and sale agreement.
  • Buyer and seller agreement.

Basically, a sales agreement outlines a transaction that will take place between a seller and a buyer. The buyer is the contracted party that is paying for a service or good, and the seller is the person or entity that provides the service or good.

Bills of sale and sales agreements serve nearly the same function, with the main difference being that sales agreements often include more details. For example, a sales agreement can include a warranty or outline a plan for payment. Sales agreements are very flexible contracts in terms of how they can be written.

In general, a bill of sale serves as proof that ownership of an asset has been transferred. You can use a sales agreement to outline the sale of a physical item such as a piece of furniture or an automobile. These agreements are also used for selling and buying services, such as installing an appliance like an oven. Sales agreements can cover both goods and services. For example, the agreement could outline the sale of a product such as a computer and a service such as setting up the device.

Understanding the Purpose of a Purchase Price Agreement

A purchase price agreement defines the terms under which one party agrees to buy and another agrees to sell an asset for a specified amount. While similar to a sales agreement, a purchase price agreement typically applies to more complex transactions, such as business acquisitions, large equipment purchases, or real estate deals.

These agreements are crucial because they outline each party’s responsibilities, protect against legal disputes, and ensure that both sides understand the expectations for payment, delivery, and ownership transfer. In some industries, they also help address regulatory compliance or financing conditions.

Information to Include in Sales Agreements

The most important part of drafting a successful sales agreement is providing a clear description of the service or good to which the contract is dedicated. The contract should include information about both parties. Details of how payment should occur and the agreed-upon purchase price must also be a part of any sales agreement.

Other important information to add to your sales agreement includes:

  • Details about delivery, if necessary.
  • A description of the liabilities of both parties.
  • Steps to resolve disputes between the buyer and seller.

If you are drafting a sales agreement related to a service, you also need to outline the required payment plan. In these contracts, the term “payment” refers to however the buyer will pay for the good or service they are receiving. Your contract can require whatever form of payment you wish, including:

  • Bank drafts.
  • Checks.
  • Promissory notes.
  • Electronic transfers.

In addition to outlining the terms of a sale, a sales agreement can serve as proof of a completed transaction. For sales agreements that include a payment plan, meaning the buyer is paying in installments, the seller should provide the buyer with a receipt after each payment. Providing regular receipts can be very useful when the buyer makes payments in cash.

Some sales agreements require a deposit, which is an amount of money agreed to by both the buyer and the seller that will serve as a type of insurance that the transaction will be completed. If the buyer decides to follow through with the sale, then the deposit will be used towards the total price for the service or good. In some cases, a deposit will be non-refundable, which means the seller gets to keep this money if the buyer does not complete the transaction.

When drafting a payment plan, you should be certain to include exact due dates, both for regular payments and for the deposit, if necessary. Including this information should make the terms of the agreement clear to both parties.

Depending on the nature of the transaction, you may also want to define delivery terms. For example, you will need to decide if the item will be shipped directly to the buyer, if the item will be delivered to the seller and then later picked up, or if the item will be delivered at a location agreed to by both parties.

The liability section of your sales agreement will describe which party is responsible if the item becomes damaged during the transaction. Typically, once the buyer has received the item, they will be responsible for what happens to it after that point.

Essential Components of a Purchase Price Agreement

A well-drafted purchase price agreement should include these key components:

  • Identification of Parties: Clearly name the buyer and seller, including legal names and contact details.
  • Description of the Asset or Service: Provide a detailed description, such as a legal property description, product serial numbers, or scope of services.
  • Purchase Price and Payment Terms: Outline the total price, payment schedule, any deposits, and acceptable payment methods.
  • Contingencies: Define conditions that must be met before the transaction is finalized, such as financing approval, inspections, or regulatory clearances.
  • Warranties and Representations: Specify assurances by both parties about the condition, ownership, or performance of the asset or service.
  • Closing Details and Delivery Terms: Describe when and where the closing will occur, who is responsible for delivery or transfer, and who bears the risk before and after delivery.
  • Dispute Resolution and Governing Law: Include clauses addressing how disputes will be handled (e.g., mediation, arbitration, or court litigation) and which jurisdiction’s laws will apply.

Tips for Drafting a Strong Purchase Price Agreement

To draft a solid purchase price agreement, consider these practical tips:

  • Be Specific and Clear: Ambiguous language can lead to misunderstandings and disputes. Every detail, especially around payment and delivery, should be explicit.
  • Include Default and Remedy Provisions: Spell out what happens if one party breaches the agreement, including penalties, refund terms, or specific performance requirements.
  • Address Taxes and Fees: Clarify which party is responsible for taxes, transfer fees, or other related expenses.
  • Use Templates Carefully: While templates can save time, they must be tailored to the specifics of your transaction to ensure legal effectiveness.
  • Leverage Digital Tools: Modern agreements are often prepared, negotiated, and signed electronically. Using secure platforms ensures proper tracking and legal enforceability.

Common Mistakes to Avoid

When creating a purchase price agreement, be mindful of these common pitfalls:

  • Failing to Include All Relevant Terms: Leaving out key details, like deadlines or contingencies, can jeopardize the deal.
  • Overlooking Local Laws: Real estate or regulated asset sales may be subject to state or local rules; make sure the agreement complies.
  • Neglecting Updates or Amendments: If terms change during negotiations, ensure they are properly documented through amendments or addenda.
  • Ignoring Due Diligence: Buyers should verify the condition, ownership, and legal standing of what they’re buying before signing.

Frequently Asked Questions

  1. What is the difference between a purchase price agreement and a contract of sale?
    A purchase price agreement focuses on the price and payment terms, while a contract of sale covers the broader terms of ownership transfer, including conditions and obligations.
  2. Do I need a lawyer to draft a purchase price agreement?
    While not legally required, consulting a lawyer helps ensure the agreement is thorough, legally sound, and tailored to your specific transaction.
  3. Can a purchase price agreement be modified after it’s signed?
    Yes, but both parties must agree in writing to any changes, typically through an amendment or addendum.
  4. Is an electronic signature valid on a purchase price agreement?
    Yes, electronic signatures are legally binding in most jurisdictions when properly executed using compliant platforms.
  5. What happens if one party breaches the purchase price agreement?
    The non-breaching party may be entitled to remedies outlined in the agreement, such as damages, refunds, or specific performance.

If you need help with a purchase price agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.