How to Draft a Purchase Agreement

A purchase agreement, also known as a Sales and Purchase Agreement or SPA, is one of the most common forms of legally binding contract people will encounter in their day-to-day lives. If you’ve ever participated in a real estate transaction, for example, then you’ve almost certainly encountered and read a purchase agreement at some point. They’re also used for a huge variety of other business transactions between a buyer and seller.

Drafting a purchase agreement is a relatively straightforward process, but including all the appropriate details of the specific transaction you’re setting up can mean tracking down a lot of different information. In complex transactions, the resulting purchase agreement can span hundreds of pages with dozens of supporting details and documentation.

In this guide, we will cover some of the basics for drafting a real estate purchase agreement yourself, whether it’s a simple one-pager or a much longer document. These tips will help you navigate the drafting process, but they are not intended to be legal advice.

This blog post is offered for general information purposes only. It does not constitute, and is not a substitute for, legal advice.

What is a purchase agreement?

A purchase agreement is a contract generally used in transactions where the buyer is purchasing goods instead of services. This type of contract is most common in more complex and expensive transactions, such as purchasing real estate or large, specialized equipment.

A purchase agreement is also usually the key document used in the purchase and sale of real estate. Unlike business transactions for specialized equipment, however, real estate purchase agreements can evolve as terms and conditions are negotiated. 

What’s the difference between a purchase agreement and a purchase order?

A purchase order can be initiated by a buyer before any terms have been discussed. A purchase agreement for specialized equipment or other large orders, on the other hand, can only be drafted once the buyer and seller have agreed on all terms and conditions of the purchase. The purchase agreement becomes the contract that codifies those agreed-upon terms and conditions and makes them legally binding.

How to draft a purchase agreement

Put simply, a purchase agreement is a contract. This means that once it is signed, the language is fixed and is legally binding for the buyer and seller. At its most basic, a purchase agreement should include the following:

• Name and contact information for buyer and seller

• The address of the property being sold

• The price to be paid for the property

• The date of transfer

• Disclosures

• Contingencies

• Signatures

When drafting a purchase agreement, simply lumping all the contingencies and disclosures together in a document won’t cut it. To make sure you have your bases covered, consider these contract drafting best practices:

• You need to officially call it a purchase agreement. 

• Don’t use “legal-sounding” words to make the purchase seem more official. 

• Use plain language whenever possible. 

• Define ambiguous terms. 

• When in doubt, include the information. It’s always better to overspecify than underspecify.

• Specificity is a must when drafting clear language in a purchase agreement. Any ambiguity can spell trouble for everyone involved.

Purchase agreement disclosures 

The disclosure portion of a purchase agreement helps the buyer trust that they know exactly what they are buying and that there will be no catastrophic surprises after they move in. Common disclosures included in purchase agreements include:

• Hazards. Risk due to natural disasters such as tornadoes and flooding, toxic materials such as asbestos and lead paint, and environmental issues such as the presence of industrial waste.

• Homeowners Association. If the property is governed by a Homeowners Association (HOA), this is the place to disclose that. Include information such as where to access HOA bylaws, insurance requirements and HOA dues.

• Water damage. If the property’s basement only floods in the spring but the purchase is made in the fall, a home inspection may not catch it. All water-related problems should be included in this section.

Other disclosures might include that there has been a death on the premises, known repairs that are needed, and whether the home is in a regulated historic district. Requirements for what needs to be disclosed in a purchase agreement in the US can vary by state. Make sure you consult local disclosure requirements as you write the agreement. 

Purchase agreement contingencies

Contingencies are the “conditions” part of “terms and conditions.” While the contingencies remain unresolved, the seller can continue to market their house to other potential buyers. If another interested buyer makes a better offer or an offer without contingencies, the seller can go back to the original buyer to see if they will remove their contingencies or counter the new offer. The seller is also allowed to simply accept the new offer without obligation to the original buyer.

Most contingencies are simple conditions like:

• Loan approval. In most cases, the buyer will take out a loan to finance the purchase of the property. If the mortgage is not approved, the buyer likely won’t be able to pay for the property.

• Inspection. A housing inspection can be a crucial assurance to the buyer that the property is in proper condition. If, for example, the foundation is cracked and the buyer learns about it from the home inspection, they can retract their offer.

• Appraisal. The buyer can stipulate that the property must be appraised by a third party that can confirm the property is worth at least the sales price outlined in the purchase agreement.

• Buyer selling their house. If the buyer intends to use proceeds from the sale of their current home to finance a portion of their offer, they will need to sell it within an agreed-upon timeframe.

• Homeowner’s insurance. The seller may stipulate that the buyer must apply for and obtain homeowner’s insurance on the property before the sale is finalized. If they can’t do so, either party may withdraw from the contract.

Consult a digital purchase agreement template

Digital templates can add a lot of value to your drafting process. Whether it’s using the template as a starting point or checking your completed purchase agreement against a third-party document, a template can save significant time and effort. 

Explore DocuSign purchase agreement templates

A DocuSign template makes it easy to send your purchase agreement for eSignature, automates the process of distributing final copies of the document to buyer and seller, and can store the document digitally with DocuSign’s full suite of digital and physical security.