What is a sales agreement?

A sales agreement is a legal and binding document regarding the transfer of property between two parties. It creates an obligation for a purchaser to buy and for a seller to sell a product/service/property.

Why is a sales agreement necessary?

A sales agreement provides a basis for negotiation between seller and buyer. It also helps both parties agree on a price and documents it. This eliminates potential for disputes later on that may occur with verbal agreements. The sales agreement also contains important information on both parties along with the terms of the sale.

When is a sales agreement used?

Not all sales require a sales agreement. They are commonly used for large, singular transactions or for frequent purchases over a limited period of time. However, it is most often used for selling real estate property. Businesses also use sales agreements when purchasing large amounts of material from suppliers or when acquiring another company.

What a sales agreement should contain

These are some of the details a sales agreement should contain in order to provide both parties with as much security as possible:

• Legal name and address of both seller and buyer
• Definitions for the terms used within the agreement
• The price of the product/service/asset/property being sold
• Payment modalities - cash, financing, shares etc.
• Adjustments to the original price
• Payment terms, deadlines and/or milestones
• Long- or short-term liabilities on the side of the buyer
• Details on warranties
• Both parties’ rights after the sale is closed
• Arbitration protocol
• Details on how to resolve disputes
• Closing date
• The buyer’s deposit and where it will be stored
• For real estate property: how high the mortgage is that the buyer needs to purchase the property

Special considerations

A sales agreement is only then signed off when all the conditions written into it have been met, such as an inspection of the goods or the real estate property being sold, for example. Once signed, it becomes binding for both parties.

Since a security deposit is often required and these are usually non-refundable, the buyer should be absolutely certain that they wish to move forward with the purchase. The seller, on the other hand, should make sure to receive a deposit to protect themselves to a certain degree at least.