What is a Purchase Agreement?

A purchase agreement is a contract used in transactions in which the buyer purchases goods rather than services. This type of sales contract is most common in more complex and expensive transactions, such as the purchase of 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. Because of this back-and-forth, the purchase agreement frequently undergoes several revisions before it is signed, finalized, and becomes a legally enforceable contract.

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

Key takeaways for understanding purchase agreements

• A purchase agreement is a legally binding contract used primarily for complex transactions involving physical goods or real estate.

• Unlike a purchase order, a purchase agreement is typically drafted only after both parties have negotiated and agreed upon all terms and conditions.

• An effective agreement includes clear asset descriptions, structured payment details, and essential disclosures.

• Using modern digital templates can streamline the drafting process and help support secure, compliant contract execution.

Are purchase agreements different from a purchase order or sales contract?

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 memorializes the parties’ agreed-upon terms and conditions in a legally binding contract.

• Purchase Order (PO): Typically, initiated by the buyer at the beginning of a transaction, often before the parties have entered into a formal agreement. A PO generally sets out the goods or services requested, quantities, pricing, and other transaction details, and it’s commonly treated as an offer to purchase. Whether a PO becomes a binding contract depends on the parties’ prior agreements, applicable law, and whether and how the seller accepts it.

• Purchase Agreement: A purchase agreement is typically made by the buyer and seller after they have reached an agreement on the material terms of the transaction. Once signed by the parties (or otherwise formed under applicable law), it becomes a binding contract that memorializes their negotiated rights and obligations.

• Sales Contract: A broad term referring to a legally binding agreement for the sale of goods or services. A purchase agreement is one type of sales contract. In some transactions, particularly routine or lower-value purchases, a purchase order and the seller’s acceptance (or performance) may together form the sales contract, without the need for a separate purchase agreement.

Key elements of a purchase agreement

While the contents of a purchase agreement vary by transaction, many include common provisions that define the parties’ rights and obligations. Understanding these provisions can help you better understand how purchase agreements allocate responsibilities and document the terms of a transaction.

• Asset description: Clearly identifies the goods, services, or property being purchased. For real estate, this may include the property's legal description, while commercial transactions often include detailed specifications for the equipment, inventory, or other goods being sold.

• Payment terms: Outlines the total cost, timeline, and payment processing method. Depending on the transaction, this section may address deposits opens in a new tab, financing arrangements, escrow opens in a new tab, payment milestones, or other financial terms.

• Warranties and representations: Describes factual statements and assurances made by one or both parties regarding matters such as ownership, authority, or the condition of assets. These provisions help allocate risk and establish contractual remedies if certain statements prove inaccurate.

• Closing mechanics: Defines the timeline and process for finalizing the deal, including the transfer of title, possession, and risk of loss.

Common types of purchase agreements

Different transactions call for different contractual structures. The appropriate agreement depends on the nature of the transaction, the assets being transferred, and the parties’ business objectives.

Here are several common types of purchase agreements.

• Asset purchase agreement: Used when a buyer acquires selected assets of a business, such as equipment, inventory, intellectual property opens in a new tab, or customer contracts, rather than buying the business entity itself. The agreement identifies the assets being transferred and typically specifies which liabilities, if any, the buyer assumes.

• Stock purchase agreement: Used when a buyer acquires ownership of a company by purchasing its shares or other equity interests. The agreement generally addresses the transfer of ownership interests, representations and warranties, closing conditions, and other transaction terms.

• Real estate purchase agreement: Used to document the purchase and sale of residential or commercial real property. These agreements often address matters such as physical inspections, financing contingencies, title, closing conditions, and the transfer of ownership.

• Equipment purchase agreement: Used for the purchase of machinery or other business equipment. Depending on the transaction, the agreement may include provisions addressing pricing, delivery, installation, acceptance testing, warranties, maintenance obligations, and risk of loss.

What goes into a purchase agreement

A purchase agreement is a contract opens in a new tab that documents the terms of a transaction between a buyer and a seller. Once the parties enter into an enforceable agreement, its terms generally govern their respective rights and obligations.

Although the contents of a purchase agreement vary depending on the type of transaction and applicable law, purchase agreements commonly include provisions addressing:

• The identity of the buyer and seller

• A description of the goods, services, assets, or property being transferred

• Purchase price and payment terms

• Delivery or closing arrangements

• Representations and warranties

• Conditions to closing, where applicable

• Signatures or other methods of execution

Organizations often strive to make purchase agreements clear, complete, and appropriate for the transaction. Common drafting practices include using plain language where practical, defining important terms consistently, organizing provisions logically, and tailoring the agreement to the specific transaction. 

Clear and specific language can help reduce ambiguity and make the agreement easier for both parties to understand.

Purchase agreement disclosures 

In many residential real estate transactions, the purchase agreement is accompanied by seller disclosure documents or includes disclosure provisions addressing known conditions that could affect the property’s value or use. Disclosure requirements vary by jurisdiction and the type of property involved. Common disclosure topics may include:

• Property Hazards: Information about known environmental hazards, flood risks, asbestos, lead-based paint, or other conditions required to be disclosed by law.

• Homeowners Associations (HOAs): Whether the property is subject to an HOA and information regarding governing documents, assessments, or other applicable obligations.

• Water intrusion or damage: Known issues involving flooding, leaks, drainage problems, or prior water damage.

• Other property conditions: Depending on applicable law, disclosures may address known defects, required repairs, historic district obligations, or other material conditions affecting the property.

 Because disclosure obligations differ by jurisdiction, the specific disclosures required for a real estate transaction will depend on applicable law and the facts of the transaction.  

Common contingencies in real estate purchase agreements

In many residential real estate transactions, purchase agreements include contingency conditions that must be satisfied or waived before the transaction proceeds to closing. These provisions help allocate risk between the buyer and the seller and establish what happens if specified conditions aren’t met.

Common contingencies include:

• Financing contingency: Allows the transaction to proceed only if the buyer obtains financing on terms specified in the agreement.

• Inspection contingency: Gives the buyer an opportunity to inspect the property and, depending on the agreement, negotiate repairs, request credits, or terminate the agreement if specific issues are identified.

• Appraisal contingency: Makes the transaction contingent on the property appraising at or above a specified value, which may be required by a lender.

• Home sale contingency: Makes the buyer’s obligation to purchase contingent on the successful sale of their current home within an agreed-upon timeframe.

• Insurance contingency: In some transactions, the parties may agree that the buyer must obtain acceptable homeowners' insurance for the property before closing.

The availability, scope, and effect of contingencies vary depending on the purchase agreement and applicable law.

Use digital purchase agreement templates as a starting point

Digital purchase agreement templates can help streamline the drafting process by providing a standardized structure and highlighting common provisions found in many transactions. They can also serve as a useful reference when organizing an agreement or comparing its overall structure. However, templates should be tailored to the specific transaction, the parties’ negotiated terms, and any applicable legal requirements. 

Explore Docusign purchase agreement templates

A Docusign template helps you prepare and send purchase agreements for eSignature, automate the distribution of completed agreements to the appropriate parties, and securely store the executed documents in a centralized repository with Docusign’s enterprise-grade security and access controls.

Frequently asked questions

Since drafting and executing these agreements involves several moving parts, navigating the details can raise practical questions. Below are direct answers to some of the most common questions about managing purchase agreements.

Can I write my own purchase agreement?

Purchase agreements can be drafted by the parties involved, and many organizations use standardized templates as a starting point for routine transactions. The appropriate form and level of detail depend on the nature of the transaction, the assets involved, and applicable law. 

More complex transactions, such as business acquisitions or real estate transactions, often involve additional legal, regulatory, or commercial considerations. Purchase agreement templates can provide a consistent framework for common provisions, but they are typically customized to reflect the specific terms of a transaction. Digital agreement platforms can also help organizations standardize templates, streamline approvals, and manage executed agreements throughout their lifecycle.

Does a purchase agreement need to be notarized?

In many instances, a standard purchase agreement does not require notarization to be effective. The parties’ signatures (or other valid forms of acceptance) are generally used to execute the contract. That said, certain jurisdictions or transaction types may require notarization for associated documents, such as deeds opens in a new tab or other closing documents. Notarization requirements can vary depending on the transaction and applicable law.

Do I need a lawyer to write a purchase agreement?

The level of support required for a purchase agreement depends on the transaction's complexity and the parties’ requirements. Many organizations use templates and digital agreement tools to streamline routine transactions, while more complex agreements may involve additional review and negotiation. Digital agreement platforms can help organizations create consistent processes, manage approvals, and maintain a centralized record of executed agreements.

What are common purchase agreement mistakes?

Common issues with purchase agreements often involve unclear terms, incomplete information, or processes that do not align with the transaction's needs. One common issue is the use of unclear or undefined terms, which can create uncertainty about how the agreement should be interpreted. Another potential issue is failing to address transaction-specific conditions or contingencies, which may create challenges if expected events or obligations are not clearly addressed in the agreement. Organizations may also encounter operational challenges when relying on outdated templates or inconsistent agreement processes. 

Digital agreement tools can help standardize templates, improve workflow consistency, and provide greater visibility into agreement management. Clear drafting, appropriate review processes, and effective agreement management practices can help reduce errors and improve the overall agreement experience.