What is a Purchase Agreement? A Complete Guide
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The National Association of Realtors (NAR) reports that 7% of real estate purchase agreements collapse. Ultimately, this means that the sale did not go through as planned. According to NAR, the reason for this failure is that finance, house inspections, and other contingencies were not met in the purchase agreement.
In the moment, a stalled sale might seem like a bad thing but in the long run these contingencies protect all parties involved, like those who have changed their minds if the asset up for sale is not worth its price after an inspection or appraisal.
Join us in the article below to learn what a purchase and sale agreement is and why you need it. Let’s get started with a definition of a purchase agreement!
What is a Purchase and Sale Agreement?
A PSA (Purchase and Sale Agreement) is a legal document. Within it, one can find the terms and conditions of a transaction between two parties, where one party sells an asset to another. Common details found in a PSA include the following:
Use a PSA to protect all parties by clearly defining what each individual can expect from the final deal.
Types of Purchase Agreements
Since all transactions are unique, we must decide which purchase agreement fits a sale best. For example, you could get a specific purchase agreement for any one of these items you want to sell:
Considering that each purchase agreement is different, make sure you have the right one that meets all your specific conditions of a sale. Remember to keep your pricing structures, delivery times, and any other important information unique to your deal. Here are a few common types of purchase agreements you could use to protect yourself in a transaction with another party.
Repurchase Agreement
A repurchase agreement, commonly known as a repo, allows a party to sell an asset to another party with the intention to buy that asset back in the future. This type of financial transaction allows the buyer to sell the asset at a higher price when the time comes.
The amount that accumulates between the time of selling the asset and the repurchase price will be the interest the buyer earns. You can find repurchase agreements used when businesses want to get short-term capital or manage its liquidity. They are often used by people working in banks, governments, and other institutions.
Power Purchase Agreement
If you ever wanted to know “what is a power purchase agreement?” you have come to the right place. It’s a contract between a business that generates power and a business that buys electricity. A power purchase agreement is used to state the following details of a deal:
Power purchase agreements are useful for obtaining finance for renewable energy ventures. They also provide buyers with options to purchase stable and clean energy at affordable prices.
Blanket Purchase Agreement
Readers often ask, “What is a blanket purchase agreement (BPA)?” It’s a document to support long-term agreements containing recurring purchases of supplies or services between parties. This type of agreement is useful in repeat business cases since the buyer can frequently purchase goods and services from a supplier without creating a contract each time they want to make a purchase.
In a blanket purchase agreement, a reader will find the general terms of the deal. If they are looking for delivery schedules or amounts of goods purchased by a buyer, these will not be in the BPA as they are set per order. For this reason, BPAs are flexible documents for parties who have repeat business transactions with each other.
Contract Purchase Orders
If you want to buy goods or services from a supplier for an extended period, we suggest using a contract purchase order. Within it, you can add the following information:
It would be wise to leave out the details of how many goods and services you want to purchase since this is a long-term business relationship. You also do not need to add the delivery dates. These details can easily be added to individual orders whenever a purchase is made during the period of the business arrangement.
Working with contract purchase orders can speed up the time it takes to make repeat purchases with a business. Additionally, they make sure that terms and conditions are followed for every purchase according to the details listed in the contract purchase order.
Essential Components of a Purchase Agreement
If you want to remain calm and collected in your business partnerships, we suggest being fully aware of the rights and obligations you and the other parties have committed to in a deal. Understanding the components of a purchase agreement can give you the power to protect your interests and avoid disputes with business partners while ensuring the deal runs smoothly. Here are a few crucial components found in purchase agreements that we can learn about.
Asset Identification
The Asset Identification component describes in detail what is sold. So, whether it is a home, manufacturing equipment, art, or software, it must be listed in a purchase agreement. The reason why an asset identification section is added to the contract is to make sure all parties clearly understand what is part of the deal.
This clarification will ensure that no party is confused and can avoid disputes about the expectations of the asset.
Purchase Price
The Purchase Price component declares the amount of money the seller will receive for an asset. In this section, the following information should be included:
When a purchase agreement has a Purchase Price section, all parties involved in the sale can clearly understand the monetary terms of the deal.
Due Diligence
The Due Diligence component spells out the process the buyer will use to investigate whether the asset is to their satisfaction. For example, a buyer can review the asset’s financial statements, physically inspect it, or research the potential risks of an investment before making a purchase. Usually, there is a due diligence time period expressed in a purchase agreement.
Due diligence is added to a contract to protect the buyer’s interests as it forces the individual to obtain all the information they need to make a sound and informed purchase.
Agreement Conditions
Agreement conditions are added to a purchase agreement to clarify the deal’s requirements and each party’s obligations. Without these conditions being met, the sale cannot proceed. Common types of conditions found in purchase agreements can include:
Contract owners add agreement conditions to purchase agreements to ensure all parties in the deal complete the commitments they promised to deliver. In this section, it’s also wise to include what happens if parties do not fulfill the conditions, such as a penalty or the termination of a deal.
Damages and Remedies
The Damages and Remedies components are needed if a party does not fulfill their obligations in the agreement. In this event, the other party can turn to the Damages section to find out what actions they can take. This part will explain the types of compensation the damaged party can request, such as money for the loss they are experiencing in the deal.
The Remedies section of the Purchase agreement will list the steps the damaged party can take to resolve their issue. Some common strategies listed below are:
Add Damages and Remedies components to a contract to protect all parties in an agreement if there is a breach. This section can guide everyone on how to swiftly resolve the problems that arise.
What Does a Purchase Agreement Look Like?
At Titan, we want to show you what a purchase agreement looks like so you can understand its structure and what to expect it to look like in real life. An image supports learning and can help you see the terms and conditions written in legal language. Here is an example of a purchase agreement to give you the confidence to buy or sell products better.
Generate Purchase Agreements with TITAN Docs
If you want to speed up creating and managing purchase agreements from Salesforce, we recommend Titan. Our no-code platform integrates directly with Salesforce and ensures your data bi-directionally flows from purchase agreements to and from Salesforce. With Titan Docs, sales teams can build and generate agreements directly from Salesforce with a simple button click to send to clients for electronic signing.
By switching to generating purchase agreements in automated workflows instead of manually creating them from scratch each time you want to sell an asset, sales teams save time and eliminate the amount of errors that naturally occur from copy-pasting data between Salesforce, other platforms, and documents.
With Titan Docs, businesses ensure that their purchase agreements are consistent across departments, clients, and sales. We also link customer data to agreements to make documents and projects easier to monitor and manage.
For more information on our point-and-click tools to generate and sign documents from Salesforce, contact us through one of our social media channels below. We would love to help you save time and propel your deals to success by automating your custom processes without code.
See you soon!
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Frequently Asked Questions
What happens after the purchase agreement is signed?
All parties must perform their duties and obligations stated in the contract. When all purchase agreement conditions are met, the buyer pays the seller, and the asset is then transferred to the buyer.
Can I change my mind after signing an offer to purchase agreement?
Yes. It’s best to refer to the purchase agreement’s terms and conditions since many contain contingencies. These terms will discuss instances when the purchase agreement can be canceled.
However, if the purchase agreement does not have any contingencies stated and a party wants to cancel the deal, they might have to face penalties, such as:
- Lose a deposit
- Prepare for Legal Action
For these reasons, it’s important to read a purchase agreement to understand your options in the deal.
How soon after signing an agreement is it legally binding?
Unless stated by conditions and contingencies, the agreement is legally binding when both parties sign it.
How do I get out of an offer to purchase agreement?
You could summon the contingency clause in a purchase agreement. If there are no financial, inspection, or appraisal contingencies, you could speak to the other party involved in the agreement and ask them what it would take to cancel it.
Keep in mind that you could face penalties or legal action if you do not have a valid reason for terminating the agreement.
