What is a Purchase Agreement?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 April 2020
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A purchase agreement is a legal document that outlines the terms and conditions connected with a transaction that includes the act of purchasing goods or services. Generally, the terms of this agreement involve identifying specific conditions that both the buyer and the seller agree to meet and perform as part of the transaction. One of the most common areas where a purchase agreement is routinely used is within the real estate industry.

A real estate purchase agreement serves the purpose of creating a binding contract between a buyer and the seller. The text of the agreement will specify the conditions that the buyer must meet before the seller with move forward with the sale of the property. At the same time, the seller also makes specific covenants to the buyer that must be met in order for the transaction to be completed. It is only after both the buyer and the seller have fully complied with the terms and conditions of the agreement that the title is transferred and the buyer assumes ownership of the property.

Along with use in business and residential real estate deals, the purchase agreement is also utilized in the telecommunications industry. Customers who wish to obtain price breaks on various communication services are sometimes offered a lower rate in exchange for making a commitment to use a minimum amount of the services within a specified period of time. This type of contract is often referred to as a volume purchase agreement.


For example, a client who wishes to secure a low rate for teleconferencing services may approach a vendor with the idea of obtaining a discounted rate, based on the size, duration, and frequency of conference calls done by the buyer. The teleconference provider in turn evaluates the total amount of conference minutes that the buyer is likely to generate in one to two calendar years. If the volume is significant, the provider may offer the buyer a per minute/per connection rate for teleconferencing that is lower than the standard rates available to the general public.

In any situation where a purchase agreement is put in place between two parties, it is necessary for both the buyer and the seller to comply with the terms outlined in the contract. Should a buyer fail to deliver the agreed upon down payment or fail to meet the credit standards associated with the real estate deal, the seller normally has the legal ability to declare the agreement null and void. In like manner, a teleconference client who fails to generate the minimum amount of usage specified in the purchase agreement within the duration of the contract is not likely to be able to renew the agreement at the same per minute/connection rate.

Purchase agreement forms used in various industries typically are a basic boilerplate design that complies with any governmental regulations that may apply to that particular industry. The typical form also provides room to add any particular covenants made between the buyer and the seller that are above and beyond those required by law.


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