‘Sale’ and ‘Agreement to Sell’ are standard terms in real estate transactions.While both involve the exchange of goods or services for a specific price, there are fundamental differences between the two. Firstly, a Sale refers to the actual buying or selling of an asset or property. On the other hand, an Agreement to sell is when there is an intent to sell the asset at a particular time in the future under certain conditions.
Sale is a type of contract where the seller transfers ownership to the buyer. An agreement to sell is a contractual arrangement wherein the transfer of ownership will occur at a future date or upon fulfilling specific conditions. Understanding the differences between these concepts is essential for businesses and individuals who buy, sell, or enter into contractual agreements in real estate.
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Overview of Sale
A sale occurs when two or more parties sign an executed contract. Once all parties fulfill their obligations, it becomes fully implemented, transferring ownership immediately to the buyer(s). Additionally, the seller must possess the property or plot to complete the sale.
There are two types of sales: Absolute and Conditional. An absolute sale occurs when goods are transferred without any dues, while a conditional sale involves small recurring payments for the transfer. In a sale, the buyer typically assumes the risk of loss or damage to the property for a certain amount. Buying an existing house from its owner is a prime example of a sale.
Essentials of Contract of Sale:
- Presence of two parties
- Price that is mutually agreed upon
- Property or plot that is the basis of the contract
- Transfer of property or plot
- Understanding of whether the sale will be conditional or absolute
- All necessary documents
Overview of Agreement to Sell
A sale agreement is a law in an executory contract instead of an executed contract. In agreement to sell, sellers and buyers agree to transfer property not immediately but on a specific date in the future. Till the time this transfer happens, risks are attached to the seller.
Agreement to sell precedes the deed of the sale. If the buyer cannot meet the given conditions, the seller can resell the property as the ownership is yet to be transferred. This may vary depending on the specific terms of the agreement.
Difference between Sale and Agreement to Sell
The main difference between a sale and an agreement of sale lies in the transfer of ownership. In a sale, the seller immediately transfers ownership of the property to the buyer, while in an agreement to sell, both parties agree to transfer ownership after fulfilling certain terms mentioned in the agreement.
Until these conditions are met, the seller remains the owner of the goods, and the buyer has a contractual right to get ownership later. Essentially, a sale is a completed transaction, whereas an agreement to sell is a promise to sell in the future.
Parameter |
Sale |
Agreement to Sell |
| Meaning | Transfer of ownership from seller to buyer in exchange for money | Transfer of ownership from seller to buyer at a later date |
| Nature | Immediate transfer of ownership | Promise to transfer ownership later after fulfilling certain conditions |
| Type of Contract | Simple contract | Conditional contract |
| Title | The title is transferred to the buyer with the execution | The title is not transferred until the agreed-upon future date |
| Transfer of Risk | Risk is typically transferred to the buyer immediately after payment | The risk of loss or damage remains with the seller until the agreement conditions are fulfilled |
| Right to Sell | Once the contract is executed, the seller has no right to sell the property | The seller can sell the property to another party if the buyer is unable to meet the agreement conditions |
| Tax | Liable for sale tax | May vary as per the jurisdiction, and the terms of the agreement |
| Consequences of damage to the goods | Buyers bear the cost of damages after the transfer of ownership | Seller may be responsible for any loss or damages, since the ownership is not transferred yet |
| Relation | It involves a direct transfer of ownership from seller/s to buyer/s | An agreement to sell consists of a promise to transfer ownership later |
| Subsequent Responsibility | Seller’s obligations are usually completed upon transfer of ownership | Loss is borne by the seller |
| Statutory Law | Includes various statutes, including:
Indian Contract Act, 1872 Transfer of Property Act, 1882 Sale of Goods Act, 1930 |
Mainly a subject of the Sale of Goods Act, 1930 |
| Examples | P sold an apartment to Q against payment of ₹1,00,00,000 | P agrees to sell an apartment to Q 2.5 years later, for ₹1,00,00,000 |
Difference Between Contract of Sale and Agreement to Sell
In business transactions and legal terminology, the concepts of a contract of sale and an agreement to sell are crucial to understanding. While they are related, they differ in certain fundamental aspects.
Overview of a Contract of Sale
This is a legally bound agreement between a buyer and a seller, where the seller transfers the ownership of a property to the buyer for monetary consideration. It is governed by the Sale of Goods Act or similar legislation in various jurisdictions.
Elements and Characteristics of a Contract of Sale
- Offer and Acceptance: The contract of sale begins with an offer by one party and its subsequent acceptance by the other. This mutual agreement forms the basis of the contract.
- Transfer of Ownership: The primary purpose of a contract of sale is the transfer of ownership. The seller must pass the title and ownership of the property to the buyer.
- Price: Contract of sale involves consideration in the form of a price. The buyer agrees to pay the seller a certain amount in exchange for the property.
- Assets: The subject matter of the contract of sale is tangible goods or assets, e.g. property or plot of land.
- Mutual Intent: Both parties involved must have the intention to enter into a binding agreement and fulfil their obligations.
Relationship Between Contract of Sale and Agreement to Sell
An agreement to sell – also known as an executory contract – differs from a contract of sale in a crucial aspect. In an agreement to sell, the transfer of ownership of the goods is delayed until a future event or condition is fulfilled. Until that event or condition occurs, the agreement remains executory and does not result in an immediate transfer of ownership.
Examples
A seller agrees to sell a ready-to-move-in home to a buyer for a specific price. The buyer pays the agreed-upon amount, and the seller immediately transfers the home ownership to the buyer. This scenario represents a contract of sale.
Read More: 15 Documents to Check & Verify Before Buying a Property
A developer agrees to sell a plot of land to a customer on the condition that the developer will obtain government approval and the customer will receive financing from a bank within a specified period. Consequently, the agreement remains executory until these conditions are met and the purchase is completed. Subsequently, once this occurs in the future, the ownership is transferred, and the contract of sale is finalized.
Final Thoughts
Understanding the difference between a sale and an agreement to sell is crucial in legal and commercial contexts. Sale is a complete transfer of ownership, and the buyer immediately becomes the property owner. An agreement to sell is a contract where the transfer of ownership will occur at a future date, upon fulfilment of certain conditions.
A sale has an immediate legal effect, and an agreement to sell is a contractual obligation. Both concepts have distinct legal implications, and understanding these nuances is essential for parties involved in buying, selling, or entering into agreements in real estate.
FAQ’s
1. What is the agreement to sell and sale of the property?
An agreement to sell refers to a contractual arrangement where the transfer of ownership of a property will occur at a future date, upon specific conditions being fulfilled. On the other hand, sale of the property is a completed transaction where ownership is immediately transferred from the seller to the buyer.
2. What is the validity of the agreement of sale?
The validity of an agreement of sale is usually 3 years, but it can also be extended. An agreement of sale can remain valid till the agreed-upon conditions are fulfilled or till the expiration date as specified in the agreement. However, the validity period can vary based on the laws of the jurisdiction and the specific terms negotiated by the parties involved.
3. What is the difference between an agreement to sell, a sale, and a hire purchase agreement?
The key difference between an agreement to sell, a sale, and a hire purchase agreement lies in the transfer of ownership. In a sale, ownership is immediately transferred from the seller to the buyer. An agreement to sell establishes a future obligation to transfer ownership upon meeting certain conditions. A hire purchase agreement is an instalment purchase, where the buyer pays in instalments and gains ownership after completing the full payment.
4. What is the difference between an agreement to sell and a sale with risk of loss?
The difference between an agreement to sell and a sale is that the risk of loss remains with the seller until ownership is transferred to the buyer in an agreement to sell. However, in a sale, the risk of loss shifts to the buyer as soon as the transaction is completed.
5. How does an agreement to sell become a sale?
An agreement to sell can transform into a sale when the agreed-upon conditions specified in the contract are fulfilled, which involves the passage of time, completion of payments, or fulfilment of specific obligations.
6. What is the difference between an agreement to sell and a bayana?
The difference between an agreement to sell and bayana lies in their nature and purpose. Agreement to sell refers to the contractual arrangements for transferring ownership in the future. Bayana refers to the advance payment made by the buyer as a token amount to purchase the property.
7. What is the difference between sale and sell in contract?
In contract, ‘sale’ refers to transferring ownership in exchange for money or any financial considerations, and ‘sell’ describes the action of offering a property for sale. While ‘sale’ is a result of mutual agreement, ‘sell’ is the act of entering into such a contract.
