What is a 'Sales And Purchase Agreement - SPA'

A sales and purchase agreement (SPA) is a legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal.

BREAKING DOWN 'Sales And Purchase Agreement - SPA'

Sales and purchase agreements are also found in the upper supply chains of many large, publicly traded companies. They are set up to help suppliers and purchasers forecast demand and costs, and become increasingly important as the size of the deals increases.

An SPA serves as a basis for a transaction to take place, providing a framework of how the transaction will proceed, what is included in the transaction, and, if necessary, what is excluded from the sale. It allows the buyer and seller of a particular asset to negotiate, and ultimately agree upon, a proper price. While not required for every transaction, SPAs are often used for large single purchases or frequent purchases across a specified amount of time.

Not only do SPAs dictate the terms of the sale, but they also contain detailed information about the buyer and the seller. They serve as a record of any deposits made as negotiations move forward, any portions of the agreement that have already been met or transactions that have already been completed, as well as an official record of when the final sale is to take place.

Examples of Sales and Purchase Agreements in the Marketplace

One of the most common SPAs occurs during real estate transactions. As part of the negotiation process, a final sales price is agreed upon by both parties. Additionally, other items relevant to the transaction, such as a closing date or contingencies, are also included.

From a business standpoint, an SPA may be used when obtaining a large quantity of materials from a supplier. This may include large-scale single purchases, such as 1,000 widgets, that will all be delivered simultaneously. An SPA may also function as a contract for revolving purchases, such as a monthly delivery of 100 widgets, purchased on a monthly basis over the course of a year. The purchase/selling price can be set in advance even if the delivery is set at a later date or spread out over time.

In a larger example, an SPA is often required during a transaction where one business is acquiring another. Similar to a real estate transaction, these documents specify the exact nature of what is being bought and sold. This may allow a business to sell its tangible assets to a buyer without selling the naming rights associated with the business.

RELATED TERMS
  1. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  2. Buyer's Call

    An agreement between a buyer and seller whereby a commodity purchase ...
  3. Bill Of Sale

    A document that details in writing a sale of goods or transfer ...
  4. Transaction Costs

    Expenses incurred when buying or selling securities. Transaction ...
  5. Transaction Date

    The date upon which a security or other financial instrument ...
  6. Opening Transaction

    The act of initiating a trade. An opening transaction is the ...
Related Articles
  1. Investing

    Contingency Clauses In Home Purchase Contracts

    Here, we introduce widely used contingency clauses in home purchase contracts and how they can benefit both Buyers and Sellers.
  2. Investing

    Home Sale Contingencies: What Buyers And Sellers Need to Know

    Home sale contingencies protect buyers who want to sell one home before purchasing another. Find out what buyers and sellers need to know about these contractual conditions.
  3. Investing

    Arm's Length Transaction

    An arm’s length transaction describes business deals in which the buyer and seller act independently and with no interest in the other’s benefit.
  4. Managing Wealth

    Rent-To-Own Homes: How The Process Works

    Here's what to watch for when negotiating a contract for a rent-to-own home – and who is a good candidate for this option.
  5. Investing

    Housing Deals That Fall Through

    Find why buyers back out and what you can do if you're left holding the bag.
  6. Small Business

    7 Steps To Selling Your Small Business

    Money in the bank and newfound free time make this grueling process worth the trouble.
  7. Investing

    7 Must-Have Real Estate Contract Conditions

    It's a good idea to educate yourself on the not-so-obvious parts of a real estate contract.
  8. Investing

    Ins And Outs Of Seller-Financed Real Estate Deals

    Seller financing works like this: Instead of a buyer receiving a loan from a bank, the person selling the house lends the buyer the money for the purchase.
  9. Investing

    Attention Home Buyers: Why You Need a Lawyer

    Property transactions are complex and subject to specific state/local rules. Hiring a lawyer can simplify the process.
  10. Investing

    5 Reasons Why You Still Need A Real Estate Agent

    Doing the work yourself can save money, but it could end up being more costly than a realtor’s commission in the long run.
RELATED FAQS
  1. How are arm's-length transactions determined by law?

    Determine if transactions are conducted at arm's length by checking if the parties to a contract are independent and transact ... Read Answer >>
  2. What do people mean when they mention real estate gazunders or gazumps?

    A gazump refers to the practice of raising the real estate's price from what was already verbally agreed upon. This move ... Read Answer >>
  3. What is the difference between an options contract and a futures contract?

    Both futures and options trading are considered advanced forms of market trading, and require additional training or the ... Read Answer >>
  4. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Answer >>
  5. What are the differences between Ex Works (EXW) and Free On Board (FOB)?

    Learn about Ex Works and Free on Board, the main difference between these Incoterms, and the responsibilities of buyers and ... Read Answer >>
Hot Definitions
  1. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
Trading Center