Find out all you need to known about Purchase and sale agreement. What is it? What to include in it? fo you need a lawyer to make it and more questions are answerd in this post. Read on!
Purchase and sale agreement
A purchase and sale agreement is a legal contract that binds a seller to sell and a buyer to buy the said service or product. These are typically common in real estate transactions but can be found in all areas of business. In this blog, we will learn more about the different aspects of purchase and sale agreements.
What is a purchase agreement?
A purchase agreement is a legal contract that contains the terms and conditions related to the sale of a product. A purchase agreement covers transactions of multiple types of products. Usually, a purchase agreement comes into the picture when the purchase price is higher than $500 but it can also be used for smaller transaction values. While purchase agreements can be used in a variety of industries, they are more commonly found in real estate and telecommunications.
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Examples of Sales and purchase agreement
Sales and purchase agreements are usually seen in real estate and business transactions. There are several other industries where having a SPA can prove beneficial but these are the two examples that find the most extensive use of purchase and sale agreement.
What is a PSA in real estate?
Purchase and sale agreement in real estate is essential when a buyer is buying a property from a seller. Using a PSA contract ensures that the rights of both the buyer and seller are secured. It also gives both parties a sense of security.
SPA in business
A purchase and sale agreement in business is required when a company is being sold by an owner or a group of owners to a buyer. The transfer of company rights is legally binding when a SPA is signed by both the parties involved in the business transaction.
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What does a sale and purchase agreement include?
If you are ready to draft a purchase and sale agreement, let us tell you what does a purchase and sale agreement include in order to protect both the buyer and the seller.
1. Purchase price and terms
A purchase and sale agreement should include the offered price by the seller along with the mention of the mode of payment.
2. Closing date
The closing date marks the transfer of property from the seller to the buyer. This transfer may eventually be recorded in a bill of sales.
3. Addendum
An Addendum is an additional document that gets added to the purchase and sale agreement. It includes additional requests or information that the buyer hasn’t mentioned in the actual agreement.
4. Contingencies
Sellers and buyers can agree upon certain conditions that must be met before the property is sold. A few of the common contingencies may include product inspection, appraisal, necessary funding, etc.
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Common provisions of a SPA for a business
Common provisions of a SPA for a business are:
- Agreement to sales and purchase
The shortest, smallest, and most important provision in the SPA, as it ensures that the full ownership of the business is properly transferred to the buyer.
- Restrictive covenants
Restrictive covenants restrict the seller from establishing any new competitive business that may hamper the value of the company being sold.
- Agreement parties
There are only two parties to the agreement if the business is wholly owned by the seller and bought by a single buyer. In case, there are multiple shareholders involved, each of them must enter into the SPA to sell the shares.
- Completion
When legal ownership of the business is transferred to the buyer
Asset purchase agreement template
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this “Agreement”) dated as of [DATE] is entered into between [SELLER NAME], a _____________ (“Seller”), and [BUYER NAME], a ______________ (“Buyer”).
WHEREAS, the Seller desires to sell to the Buyer a comprehensive collection of ___________________ (“Collection”), which is more particularly described in the attached inventory, Attachment A, which is incorporated herein by reference.
Capitalized terms used in this Agreement have the meanings given to such terms herein and are identified by the cross-references set forth in Exhibit A attached hereto.
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PSA in real estate – Provisions and FAQ
PSA can be intimidating with a lot of information, contingencies, disclosures all rolled up in one contract. Purchasing a real estate property involves a huge amount of money and can be quite confusing for a first-timer. There are several questions that a buyer or a seller faces while signing a purchase and sale agreement.
Below, we have tried to answer some of the frequently asked questions that are common while signing a PSA in real estate to help your journey slightly easier.
1. Who orders the survey when buying a house?
Once the buyer’s offer is accepted by the seller, the buyer will order the survey of the house to ensure that the property is a worthy investment. The seller may recommend an independent surveyor but they will not be the one arranging it.
2. Can the seller sue the buyer for backing out?
There might be several circumstances under which a buyer has to back out of the deal. For e.g., If a buyer is unable to arrange for a down payment or if the bank rejects the home loan application. Under such scenarios, the seller can forfeit the buyer token money, but he can not sue the buyer.
3. Is the closing conducted by the seller’s agent?
No, the closing is not conducted by the seller’s agent. The closing is conducted by a closing agent who usually is an attorney or official from a title or mortgage company. During closing, all the participants review, authorize and date several legal documents.
4. How long after the closing date will the seller receive money?
In wet funding states, the seller receives money on the day of the closing. Whereas, in dry funding states it may take up to 4 days for a seller to receive money from the day of closing.
5. How to get out of a realtor contract?
If you are unhappy with your realtor’s services you may want to get out of the contract. If talking to your realtor and broker is not working out, read the entire contract thoroughly to understand the terms of breaking the contract.
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6. Can I sue my lender for not closing on time?
Lender liability gives borrowers the right to sue lenders in case of breach of contract. As a borrower, you can sue the lender for not closing on time if the lender has guaranteed you a loan commitment within a certain timeframe in writing and fails to do.
7. When to get a real estate lawyer?
It is a good idea to get an expert opinion while making huge life-changing financial transactions. A real estate lawyer is a licensed practitioner who is familiar with all aspects of the real estate purchase process and is eligible to represent buyers, sellers, or lenders.
8. Can the seller back out if the closing date is not met?
When the buyer misses out the closing date, the seller has the right to back out of the agreement and re-list the house for sale. However, this is only possible if the closing date was determined beforehand and the contract was signed by both parties.
9. Does a contract have to be notarized?
Under contract law, a contract does not need to be notarized in order to be legally binding. But a notarized contract can help a great deal if either of the two parties who signed the agreement decides to dispute that agreement in court.
10. Do you get due diligence money back?
The due diligence money is non-refundable. If a buyer decides not to go ahead with the purchase, the due diligence money is forfeited. Otherwise, it will be used as a buyer’s closing cost or down payment at the time of the purchase.
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11. How to write a purchase agreement for land?
- Identify the address of the property being purchased
- Identify the name of both buyer and seller
- Detail the price and terms of purchase
- Set the closing date and closing cost
- Detail taxes and additional charges, and determine which party will be paying these costs along with the mode of payment
- Include any mandatory disclosure related to the property
- Detail out the sale contingencies, such as pending inspections, appraisals.
Megha is a content writer with sharp technical skills, owing to her past experience in networking and telecom domains. She focuses on various topics including productivity, remote work, people management, technology, market trends, and workspace collaboration.
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