What Is a Sales Agreement: Everything You Need to Know
What is a sales agreement? A sales agreement is used to secure the sale of complex sales transactions primarily for real estate and business assets.3 min read
What is a sales agreement? A sales agreement is used to secure the sale of complex sales transactions primarily for real estate and business assets. The agreement confirms the time allowed for the sale to take place, amount and payment details related to earnest money and, in some cases, partial payment of the contract consideration.
A sales agreement differs from a bill of sale due to the requirement that the conditions of the agreement must be met for the sale to be considered final. In some states the sales agreement precedes a deed of sale, while in others the sales agreement is registered and can act as a deed of sale.
Basic Elements of a Sales Agreement
Sales and purchase agreements contain detailed information including:
- The seller and the buyer's full name, address and phone number.
- The name, address and phone number of any co-signers.
- The type of sale.
- The date of the initial agreement.
- The amount of any deposit paid.
- The dates when other steps detailed in the agreement must be completed.
- The date of final contract closing and transfer of ownership.
Property sales agreements include:
- Any known deficits or defects.
- Language that allows for the inspection of the property, including approval for the use of professionals to complete the inspection.
Financing sales agreements for real estate sales, or when a mortgage or load is part of the purchase, will include:
- The basic financial terms of the agreement.
- Interest rates.
- The amount financed for the purchase.
- The down payment supplied.
- Information regarding escrow funds.
- Sales commission.
- Sales tax.
- Any additional financial information pertinent to the agreement.
- Time frames for the procurement of funds.
Ownership is the element of the agreement that confirms the seller has the right to sell the property, will sign it over, and supply all paperwork related to ownership and any property records that exist.
In the situation where changes must be made to the sales agreement, addendums must be drafted, agreed to and signed by all parties. The addendum may be added by the seller, buyer or both parties. Common uses of an addendum in real estate agreements include:
- The closing date needs to be extended.
- More time is needed for inspection or completion of agreed to repairs.
- Any other circumstances that require the original sales agreement to be altered.
Sales Agreement Contingencies
All sales agreements, whether pre-printed or custom made, should always include a contingency section. Contingencies are safeguards to protect the interest of both the seller and buyer. Contingency examples include:
- The amount deposited by the buyer and what happens if the agreement is canceled.
- A detailed description of any personal property that is being sold as part of the agreement.
- The escrow date and plans if the closing date is delayed.
- The occupancy date, if not the same as the closing date. If the seller remains at the property after escrow, what will their rent payment be and for how long will they be there?
- Prorations, meaning the shared expenses of the seller and buyer, that may include taxes or rent and the date the amount will be calculated.
- The ramifications if either party doesn't fulfill the terms of the agreement, called default provisions.
- Termite inspection details including who pays for the inspection and who is responsible for the cost associated with fixing any issues found in the inspection.
- Financing arrangements including the time allowed for the buyer to secure a loan. The standard time frame for submitting loan applications is 10 to 14 days, while the time to receive loan approval is 30 days.
- Additional time to complete inspections is required such as a roof inspection or checking for lead or radon. Buyers usually have 10 to 14 days to complete inspections.
- A stipulation for payment of fees and sufficient time for the buyer to review the preliminary title report to approve. The fees listed cover the following:
- Real estate commissions
- Closing costs
- Title fees
- A listing of covenants, conditions and restrictions such as those from a homeowners association, condominium board, cooperative or common interest development. For the approval of condominium board documents, bylaws, budget and other conditions, a provision should be listed with 10 to 14 days given from confirmation of approval.
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