A bill of sale is a legal document that records the transfer of ownership of goods or real estate from one person (the seller) to another (the buyer). The parties should use this legal document as evidence that ownership has been transferred from one party to another.
This document contains all essential information about the parties involved, the purchased goods, and other relevant details about the completed sale. It is often required when registering a motor vehicle, guns, and other items.
Furthermore, in a bill of sale, the parties are free to include all purchase details, specify the condition and description of the item sold, and provide disclosures to protect their rights and limit their liabilities.
How Does a Bill of Sale Work?
A bill of sale works by formalizing the agreement between the seller and buyer regarding all transfer terms through a legal document. This process occurs when both parties actively and with full consent fill out all the sections listed in the bill of sale, sign it, and retain a copy for themselves.
This legal document generally includes sections on the parties` details, like full name, address, contact phone number or email address, detailed information about the purchased item, disclosures related to the item`s condition, purchase price, payment method, and signatures.
When Should You Use It?
A bill of sale should be used whenever a valuable asset is transferred, especially if the seller lacks a certificate of title or when specific information that is not listed in the certificate of title needs to be specified.
It's also useful when the item for sale is used, and a detailed description of its condition is required so that the seller can limit liability after the transaction.
In essence, a bill of sale is utilized to ensure transparency, legal compliance, and protection for both parties involved.
Types of Bill of Sale
There are different types of bill of sale depending on the type of item involved in the transaction, such as:
Bill of Sale Types
Car, boat, or motorcycle Bill of Sale. This type of bill of sale is optional in some states, primarily because it only records the sale and does not transfer ownership. However, it is essential to have it as it typically details the item being sold, including the model, body type, year of production, vehicle identification number, odometer reading, and cylinders.
Horse Bill of Sale. A horse bill of sale serves the same purpose as other types of this document, but it includes specific details so the horse can be individualized, helping parties avoid future confusion. It is also common practice for a veterinarian to examine the horse to determine its health condition, which is then recorded in the bill of sale.
Real Estate Bill of Sale. A bill of sale for real estate records the transfer of ownership of a specific property. Here, it's necessary to point out that this document is not in the form of a quitclaim bill of sale. Despite detailing all transaction elements, a quitclaim bill of sale does not guarantee that the seller holds all the rights listed in the document.
There are also different types of bills of sale based on the level of legal protection and warranties they provide for the buyer:
Quitclaim bill of sale (“As Is”): This type is similar to a quitclaim deed, indicating the transfer of ownership of a particular item or property without any warranties from the seller regarding the item’s condition or title.
Bill of sale warranty: With this type of bill of sale, the seller guarantees the buyer that they are the rightful owner of the transferred item and that no third party holds rights to it.
How to Create a Bill of Sale
To successfully create a bill of sale, you should comply with the following steps:
#1. Negotiate the Agreement Terms
The seller and buyer should negotiate and agree on all the agreement terms, including:
Transaction object (item)
Item condition
Price
Payment method
Transfer costs
Payment due date
Warranty (if any)
#2. Download a Bill of Sale Template and Fill It Out
Once the parties have agreed on all the transaction details, the next step is to fill out the bill of sale template, which they can download from our website. These templates are tailored to different types of items, such as vehicles, boats, animals, firearms, and more.
The bill of sale should outline the following details:
Bill of Sale Template
Seller and buyer information. Full name, address, zip code, and contact information.
Item details. For vehicles and vessels, parties should include the identification numbers, model, color, year of manufacture, and any additional equipment. For animals, they should include name, gender, color, year, and health condition.
Price and payment method. The sale price, payment method (lump sum or installments), and due date.
Trade-in transaction. When the seller and buyer exchange items of the same or similar value, they should provide details of the items and their estimated values. If one item is more valuable than the other, the difference will be paid in cash to equalize the value of the higher-priced item, which should be stated in the bill of sale as well.
Disclosures. In this section, usually, the seller discloses the item’s condition, mileage, and any flaws or defects. This ensures the buyer knows the item’s condition and agrees to purchase it “As Is.”
#3. Sign It and Notarize It
After the parties have filed out the bill of sale, they need to sign the document and notarize it. Notarization is not mandatory in every state, but it is recommended for legitimacy and to ensure the transaction is secure and protected.
The parties should verify which states have notarization requirements.
“As Is” vs. Warranty in a Bill of Sale
The terms “As Is” and “Warranty” in a bill of sale tell the buyer about the item`s condition, any possible issues, and any guarantees about its quality and functions.
Let's delve deeper.
What Does “As Is” Mean?
The term “As Is” means that the item being transferred is sold in its current condition, just as it is. This term is commonly used when the seller is selling a used item and cannot guarantee its quality or how it will function in the future.
When the buyer agrees to purchase the item “As Is,” it signifies their acceptance of buying the item in such a state, with potential damages and faults that come with the fact that the item has been previously used.
This acknowledgment by the buyer relieves the seller of further responsibility for the item once the transaction is completed.
What is a Warranty?
On the other hand, a warranty is a seller's promise that the item will meet certain standards for a specific period—how long the item will work and be defect-free. The seller usually agrees to fix or replace the item if something goes wrong within the warranty period.
Therefore, having a warranty on the bill of sale gives the buyer more confidence about the quality and reliability of what they're buying.
3 Mistakes To Avoid When Creating and Using a Bill of Sale
The three most common mistakes to avoid when creating and using a bill of sale are as follows:
Incomplete Data
A bill of sale serves its purpose—as evidence that a transaction has occurred as agreed upon. Therefore, it's essential to pay close attention to all sale elements when filling out the bill of sale.
It means specifying the transaction date, providing identification details of the contracting parties, and identifying the object of the sale by listing all its specifications. Additionally, it's necessary to indicate the condition in which the object is being sold and whether there are any warranties for its proper functioning and quality.
Otherwise, the parties may be unable to prove that something was agreed upon because it wasn't listed in the bill of sale.
Not Signing or Not Keeping the Copy
The act of signing a bill of sale is not just a formality but a legal requirement and it can involve signing the document in the presence of a notary public. Once signed, the document becomes legally recognizable and binding.
Without signatures, it's considered that there`s no agreement between the parties, and the drafted bill of sale does not serve as proof of any transaction. It's also crucial for each party to keep a copy of the bill of sale as a reference to everything agreed upon.
Confusing Bill of Sale with Title
One common mistake is not differentiating between a bill of sale and a title, assuming that drafting and signing the bill of sale makes the buyer the new owner.
While a bill of sale is crucial and proves everything related to the transaction—the parties involved, the purchase date and price, and the object being sold—for the buyer to transfer ownership, they need to possess both the bill of sale and the title.
So, the title is the document that proves the seller's legal ownership of some item. For example, to transfer the title of a vehicle from the seller to the buyer, beside a bill of sale, the seller should submit other forms to the local DMV and pay fees.
Final Thoughts
A bill of sale is significant in legal transactions as it documents the purchase of various items between two parties.
Buyers can easily prove the terms under which they purchased a car, boat, trailer, or animal with the bill of sale, which helps prevent potential disputes between the buyer and seller. It also ensures the buyer's legal protection in case a third party makes a claim on the item.
However, to provide complete legal protection for the bill of sale, the parties must be careful when negotiating the purchase details and, even more importantly, entering those details into the document. Only a correctly completed, signed, and notarized bill of sale will fulfill its purpose.
