Create a Purchase Agreement Online

Purchase agreements and bills of sale are related but distinct documents that serve different purposes in a transaction. Understanding the difference helps ensure you use the right document at the right time.

Purchase agreement: A purchase agreement is created before the transaction is completed. It outlines the terms under which the sale will occur, including the price, payment method, conditions, warranties, and timeline. The purchase agreement is a forward-looking document that governs the process of completing the sale. It may include contingencies (conditions that must be met before the sale goes through), inspection periods, and provisions for what happens if either party defaults. The purchase agreement is signed when the parties agree to the terms, which may be days, weeks, or even months before the actual transfer of ownership.

Bill of sale: A bill of sale is created at or after the time of the transaction. It serves as a receipt and proof that ownership has been transferred from the seller to the buyer. The bill of sale documents that the sale has occurred, identifies what was sold, states the price paid, and confirms the transfer of ownership. It is a backward-looking document that records a completed transaction. Bills of sale are commonly required for vehicle transfers, where the DMV uses the bill of sale to process the title transfer and registration.

When to use each: Use a purchase agreement when you need to establish terms before a sale is finalized — especially for high-value transactions, transactions with conditions or contingencies, transactions that will close at a future date, or transactions involving complex terms. Use a bill of sale to document a completed transaction and prove the transfer of ownership. In many transactions, you may use both: a purchase agreement to govern the sale process, followed by a bill of sale at closing to document the completed transfer.

Real property transactions: For real estate purchases, the purchase agreement (often called a purchase and sale agreement or PSA) is the primary contract governing the transaction. The actual transfer of ownership is accomplished through a deed rather than a bill of sale. The deed is recorded with the county recorder's office to establish the new owner's title to the property.

A well-drafted purchase agreement should address all material aspects of the transaction to minimize the risk of disputes. Here are the essential provisions every purchase agreement should include:

• Identification of the parties: Full legal names and contact information of the buyer and seller. If either party is a business entity, include the entity name, type (LLC, corporation, etc.), and the name and title of the authorized representative signing the agreement.
• Description of the subject matter: A detailed description of what is being sold — whether goods, services, or property. The description should be specific enough to identify the subject matter without ambiguity. For goods, include model numbers, serial numbers, quantities, and specifications. For real property, include the legal description and street address.
• Purchase price and payment terms: The total purchase price, any deposit or earnest money required, the payment method (cash, check, wire transfer, financing), and the payment schedule. If the purchase is financed, include the terms of the financing arrangement or reference a separate financing agreement.
• Closing date and delivery: The date or timeframe for completing the transaction, the method of delivery or transfer, and any costs associated with delivery (shipping, transfer fees, recording fees). Specify who bears the risk of loss during transit.
• Inspection and due diligence: Whether the buyer has a right to inspect the subject matter before closing, the duration of the inspection period, and the buyer's remedies if the inspection reveals defects or problems. Inspection periods are standard in real estate transactions and advisable for high-value goods purchases.
• Warranties and representations: Whether the sale is "as-is" (no warranties) or includes warranties about the condition, quality, title, or fitness of the subject matter. Limited warranties specify the scope and duration of the seller's guarantee. Full warranties provide comprehensive coverage. Clearly state what warranties are included and any exclusions or limitations.
• Contingencies: Conditions that must be satisfied before the sale is finalized. Common contingencies include financing approval, satisfactory inspection results, clear title verification, appraisal at or above the purchase price, and regulatory approvals. If a contingency is not satisfied, the buyer typically can cancel the agreement without penalty.
• Default and remedies: What constitutes a default by either party, and the remedies available to the non-defaulting party. Common remedies include specific performance (requiring the defaulting party to complete the transaction), monetary damages, retention of the deposit by the seller, or return of the deposit to the buyer.

Purchase agreements are used across a wide range of transactions, and the specific terms and provisions vary depending on what is being purchased. Here are the most common types of purchase agreements and their unique considerations.

Goods purchase agreements: Contracts for the sale of tangible personal property — from consumer goods to industrial equipment. These agreements are governed by Article 2 of the Uniform Commercial Code (UCC), which provides default rules for issues such as warranties, risk of loss, and remedies for breach. Key considerations include specifications and quantity, inspection and acceptance procedures, shipping terms (FOB origin vs. FOB destination), warranty provisions (express warranties, implied warranty of merchantability, implied warranty of fitness for a particular purpose), and return or rejection rights.

Real property purchase agreements: Contracts for the sale of land and buildings, also called purchase and sale agreements (PSAs). Real estate transactions are among the most heavily regulated, and purchase agreements for real property typically include earnest money deposits, title search and title insurance requirements, property disclosures (known defects, environmental issues, zoning restrictions), financing contingencies (mortgage approval deadlines), inspection contingencies (home inspection, pest inspection, environmental assessment), appraisal contingencies, closing cost allocations, and prorations (property taxes, HOA dues, utilities).

Business purchase agreements: Contracts for the sale of a business or business assets. These are among the most complex purchase agreements because they may involve tangible assets (equipment, inventory, real property), intangible assets (intellectual property, customer lists, goodwill), liabilities (debts, pending litigation, contracts), and employees (retention agreements, non-compete provisions). Business purchase agreements typically include representations and warranties about the business's financial condition, assets, liabilities, contracts, litigation, and compliance with laws. They also address the transition period, including the seller's cooperation, employee matters, and customer notification.

Service purchase agreements: Contracts for the purchase of services rather than goods. While not always called "purchase agreements," these contracts establish the scope of services, performance standards, payment terms, intellectual property ownership, and liability limitations. Service agreements are not governed by the UCC but by common law contract principles, which may impose different rules regarding formation, modification, and remedies.

While purchase agreements are governed by general contract law principles that are largely consistent across states, several state-specific requirements can affect the enforceability and terms of your agreement. Understanding these requirements helps ensure your purchase agreement complies with applicable law.

Statute of Frauds: Every state has a Statute of Frauds that requires certain contracts to be in writing to be enforceable. Under the UCC (adopted in all states except Louisiana for goods transactions), contracts for the sale of goods worth $500 or more must be in writing. For real property transactions, virtually all states require a written agreement for the sale of land or any interest in land. Some states have additional writing requirements for other types of contracts, such as contracts that cannot be performed within one year.

Property disclosure requirements: Most states require sellers of residential real property to provide buyers with a written disclosure of known material defects and conditions. The specific disclosure requirements vary significantly by state — some states require detailed disclosure forms covering dozens of categories (structural issues, environmental hazards, pest damage, water damage, neighborhood nuisances), while others have more limited requirements. Failure to provide required disclosures can give the buyer the right to cancel the contract or sue for damages after closing.

Real estate specific requirements: Many states impose additional requirements on real estate purchase agreements, including mandatory attorney review periods (some states require that both parties have an opportunity to have the agreement reviewed by an attorney), specific cancellation rights for certain types of properties (timeshares, new construction, subdivisions), required contract provisions (some states mandate specific language regarding earnest money handling, title insurance, or closing procedures), and recording requirements (the deed transferring ownership must be recorded with the county recorder's office).

Consumer protection laws: State consumer protection laws may impose additional requirements on purchase agreements involving consumer goods or services. These laws may provide cooling-off periods (the right to cancel certain purchases within a specified time), prohibit certain unfair or deceptive contract terms, require specific disclosures about warranty rights, and provide additional remedies beyond those available under general contract law. For example, the FTC's Cooling-Off Rule gives consumers the right to cancel sales of $25 or more made at their home or at a location that is not the seller's permanent place of business within three business days.

Governing law: Your purchase agreement should specify which state's law governs the contract. This is particularly important for transactions involving parties in different states. Without a governing law clause, disputes may arise about which state's law applies, potentially leading to costly litigation over this threshold issue before the substance of the dispute is even addressed.

A purchase agreement that is poorly drafted or missing key provisions can lead to costly disputes, failed transactions, and legal liability. Here are the most common mistakes to avoid when creating a purchase agreement.

Vague or incomplete description: Failing to clearly describe what is being purchased is one of the most common and most damaging mistakes. A description that says "office furniture" without specifying the items, quantities, condition, and specifications leaves room for disagreement about what the seller is obligated to deliver. Be as specific as possible — include model numbers, serial numbers, dimensions, quantities, condition descriptions, and any other identifying information. For real property, always use the legal description in addition to the street address.

No inspection contingency: Buying goods or property without an inspection contingency means the buyer may be stuck with defects discovered after closing. Unless the buyer has thoroughly inspected the subject matter before signing the agreement and is comfortable purchasing "as-is," an inspection contingency provides essential protection. The contingency should specify the inspection period, who pays for the inspection, and what happens if the inspection reveals problems (buyer can cancel, request repairs, or renegotiate the price).

Unclear warranty terms: Ambiguity about whether the sale includes warranties — and if so, what they cover — is a frequent source of disputes. If the sale is "as-is," say so explicitly and include a disclaimer of all warranties (express and implied) to the extent permitted by law. If warranties are included, clearly define the scope, duration, and limitations. Under the UCC, implied warranties (merchantability and fitness for a particular purpose) automatically apply to goods sales unless properly disclaimed.

Missing default provisions: Without clear provisions for what happens when a party defaults, the non-defaulting party may face uncertainty about their rights and remedies. The agreement should define what constitutes a default, provide a cure period (time for the defaulting party to fix the problem), and specify the remedies available (specific performance, damages, deposit retention, or contract cancellation). Without these provisions, the parties must rely on default rules under state law, which may not align with their expectations.

Ignoring closing costs and fees: Failing to specify who pays closing costs, transfer taxes, recording fees, inspection fees, and other transaction costs can lead to last-minute disputes that delay or derail the closing. Address the allocation of all anticipated costs in the agreement so both parties know their financial obligations before they reach the closing table.

No dispute resolution clause: Without a dispute resolution clause, any disagreement between the parties may default to expensive and time-consuming litigation. Consider including a mediation or arbitration clause that provides a faster, less expensive alternative to court. The clause should specify the dispute resolution method, the location or venue, and who bears the costs of the proceedings.