Understanding Legal Documents: Bill of Sale Basics

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You’re buying a used car that you found in an online classifieds ad. The seller seems trustworthy enough, and they’re prepared to show you the title to the vehicle after you’ve talked about test drives and pricing. You’re ready to go get a cashier’s check from the bank, but you notice that you can’t seem to stop wishing there was some sort of documentation to record the key details of the transaction. 

Fortunately, this kind of document exists — it’s called a bill of sale. In some states, a bill of sale is a legal requirement. And in many cases, you’ll be able to draft one yourself. However, there are some important things to understand about bills of sale to ensure you’re creating them properly. Before you head out to pick up your new vehicle, learn more about how this type of legal document works and when you’ll need to get one.

What Is a Bill of Sale?

A bill of sale is a legal record of a sales transaction or the transfer of property from one party to another. People typically use bills of sale to record the sale of a physical good, not a service. The document lists the selling price of the item and the date the sale takes place. It also includes pertinent information about the transaction, and it has the names and addresses of both the buyer and seller. Both parties sign the bill of sale, often under supervision of a notary public.

Bills of sale can include different types of information depending on the item that’s for sale and the level of detail you want the document to have. A bill of sale often includes a clear, specific description of the item with information about its overall condition. For example, a bill of sale wouldn’t only state that someone is purchasing a horse. Instead, it would say that a 2-year-old, brown, branded, pure-breed Appaloosa is being sold. Identifying numbers, like a VIN for a car or serial number for a television, are also wise details to include. Additionally, a bill of sale might also include warranty information or other details that are conditionally important. For example, a bill of sale may note that you’re selling a car as-is or that a car has just passed an inspection.

You can write your own bill of sale, or an attorney can draft a bill of sale for you. For smaller transactions, it’s not as common to hire an attorney to write a bill of sale — although you’re more than welcome to have your attorney draft one or read yours over before the involved parties sign it. There are generic bill of sale templates available on the internet and in office supply stores. Some businesses also have their own branded bill of sale templates. For example, car dealerships commonly provide you with a bill of sale when you buy a car. 

What’s the Purpose of a Bill of Sale?

A bill of sale protects both the buyer and the seller in a transaction. It clearly identifies what’s being sold, who’s selling it and how much they’re selling it for. There’s less room for future disagreements between the two parties when there’s a written record of the transaction.

A well-written bill of sale lists warranties, when necessary, that apply to the sale. Suppose you buy a couch, and the seller writes that it’s a brand new couch from a pet-free home on the bill of sale. If the couch collapses the first time you sit on it and you’re enveloped in a cloud of dog hair, you may be able to recoup your expenses for the couch in small claims court. The bill of sale protects your rights because the seller made a false written legal statement about the couch. It can also be just as helpful if you’re the seller, too.

A bill of sale is especially important for a transaction in which one party isn’t making the full payment for the item before it’s exchanged. For example, you may sell your car, let the buyer make a down payment and then allow them to make monthly payments for a year on the remainder they owe. When this is the case, you’ll want to detail the payment arrangement on the bill of sale clearly. If the buyer defaults on their payments, you already have a written legal record to support your efforts to recoup your loss.

When Do You Need a Bill of Sale?

There are certain situations in which a bill of sale is required by law. Many states require parties to create this document for the sale of a used car. Other states only require dealerships to supply a bill of sale to a buyer. It’s also common for states to legally require bills of sale in transactions that involve livestock, such as horses, cows and other animals that farmers commonly own for profit. 

Online resale groups and apps have made buying and selling goods from complete strangers more common. With these sales, a handshake or verbal agreement is often insufficient. Even when there’s no legal requirement, it’s wise to use a bill of sale any time you sell or buy something of considerable value. 

If the item doesn’t work as expected, is the buyer likely to ask for a refund due to the higher cost? Is there a payment arrangement in which the buyer will take possession of the item before paying in full for it? Does the item have physical flaws or functional issues? If the answer to any of these questions is “yes,” it’s a good idea to write out a bill of sale.

As a buyer, you can ask for a bill of sale. You can even prepare it and ask the seller to sign it. You don’t need a bill of sale when selling a T-shirt at a yard sale. However, when selling something like a car, a computer or another costly item, it’s wise to use a bill of sale. 

How Do You File a Bill of Sale?

Typically, when a state requires a bill of sale for a used car, for example, the seller has the duty to file the document with their local department of motor vehicles. When this is the case, there’s usually a defined process for filing the bill of sale at the same time the title is transferred. Your state or county will have this process outlined and accessible, likely on its website, so you can get prepared.

Even if there’s no legal requirement to file a bill of sale in your state or for the type of item in question, both you and the other party should have separate copies of the bill of sale. Each party should keep the signed copy of the document to refer back to if there’s a dispute about the item or payment arrangement in the future. If a dispute progresses to the level of a lawsuit, both copies of the bill of sale could become essential pieces of evidence. 

In any transaction, a bill of sale removes some of the room for confusion. It’s a written method of making sure buyers and sellers both understand the conditions of the sale and payment, and it provides legal protection if a sale doesn’t turn out the way both parties anticipate. Writing a bill of sale is a low-cost element of a transaction that could end up helping you save money in the long run.