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'

An SPA serves as a basis for a transaction to take place, providing a framework for 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.

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

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. Sale

    A sale is a transaction between two parties where the buyer receives ...
  2. Conditional Sales Agreement

    A conditional sales agreement grants possession of an asset to ...
  3. Inverse Transaction

    An inverse transaction cancels out a forward contract that has ...
  4. Buyer's Option

    A buyer's option is an agreement between a vendor and buyer that ...
  5. Transaction

    A transaction is an agreement between a buyer and a seller, but ...
  6. Owner Financing

    Owner financing is when a property seller finances the purchase ...
Related Articles
  1. 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.
  2. Investing

    Housing deals that fall through

    Find why buyers back out, and what you can do if you're left holding the bag.
  3. Investing

    Playing hardball when selling your home

    Are you planning on selling your house? Learn these strategies to help you get you a better deal in house sale.
  4. Small Business

    The Buy Side of the M&A Process

    Mergers and acquisitions can anywhere from months to years, depending on the complexity of the deal and the companies involved.
  5. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  6. 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.
  7. Investing

    4 Ways Millennials Can Buy Private Businesses

    Buying private businesses is a good way to have greater control over your investments while increasing your income and avoiding the fluctuations of the market.
  8. Investing

    Understanding Real Estate Commissions: Who Pays?

    When you set out to buy or sell a house, one factor worth considering is the real estate agent's fees.
  9. Investing

    What Is A Short-Sale Property & How Does It Work?

    A short sale is an alternative to foreclosure whereby indebted owners get permission from a bank to sell their house for less than amount of the mortgage.
  10. Investing

    13 steps to closing a real estate deal

    A long list of things needs to happen before a home becomes yours. Find out what to expect when closing a real estate deal.
RELATED FAQS
  1. What's the difference between cash-on-delivery differ and delivery against payment?

    Find out more about cash on delivery and delivery versus payment transactions and the difference between these two types ... Read Answer >>
  2. What are the Differences Between Ex Works (EXW) and Free On Board (FOB)?

    Although these terms are similar, responsibilities and obligations are delegated to different parties in EXW and FOB. Read Answer >>
  3. When does vertical integration reduce transaction costs?

    Trading is not only based on supply and demand, but also negotiations between companies. Vertical integration can eliminate ... Read Answer >>
Trading Center