What is a bill of sale?

A bill of sale is a legal document that records the transfer of ownership of an asset to a second party in exchange for money.

The document is commonly used to record the sale of aircraft, autos, motorcycles, and watercraft. It also can be used to record the sale of personal property, such as animals or furniture.

The bill of sale, as a rule, is drafted by the seller and includes the details of the transaction. It protects both the buyer and the seller, should disagreements arise in the future.

When should you use a bill of sale?

A bill of sale is commonly used when selling or buying an item of value.

Most states require a bill of sale as proof of purchase when buying or selling a vehicle or a branded animal, like a horse (a horse bill of sale). 

If you're selling an item of lesser value, such as clothing, it comes down to personal preference as to whether you want to take the time and trouble to draft a bill of sale.

If you are the buyer, and you want a bill of sale, you can bring one with you, even though the seller typically provides it.

Parts of a bill of sale

A generic bill of sale includes the following information:

• Date of purchase
• Name and address of seller and buyer
• Amount paid for the transfer of ownership
• Description of the assets being transferred
• Guarantee that the item is free from all claims and offsets
• Representations or warranties
• Signatures of seller, of buyer, and of a notary public

When drafting even a simple bill of sale, make sure it complies with your state requirements, which will vary by state. For example, some states require only the buyer to sign the document, while others require both the buyer and the seller to sign the document. Still, other states require that the form be notarized.

Quitclaim bill of sale

A quitclaim bill of sale is similar to a quitclaim deed: It transfers ownership of property from one party to another. It is used when the seller can't guarantee that they own the property and have the right to transfer it, or when the seller doesn't want to warrant title, which leaves the buyer no legal recourse if problems arise in the future.

A bill of sale with warranty, on the other hand, means the seller can guarantee that they own the property and have the right to transfer it, and will protect the buyer from future claims against the property.

Because of the complexities of real estate transactions, you should not use a quitclaim bill of sale when selling or buying real estate.

Vehicle bill of sale

A vehicle bill of sale is not required in all states. For example, Illinois and Tennessee don't require an auto bill of sale. Some states require that you use a bill of sale from your state's Department of Motor Vehicles (DMV), while others let you draft your own, so long as it complies with your state's legal requirements.

Keep in mind, however, that a bill of sale does not prove ownership — only a title transfer does that. A bill of sale is only a record that a sales transaction occurred between two parties. Your state's DMV may require that you bring a completed bill of sale with you before the vehicle title transfer paperwork can be completed.

A vehicle bill of sale also includes:

• Vehicle type (i.e., car bill of sale, motorcycle bill of sale, boat bill of sale)
• Make, model, and year of vehicle
• Odometer reading
• Hull number
• Engine serial number
• Vehicle registration number
• Vehicle identification number

Regardless of whether or not your state requires a bill of sale, it's a good idea to have one on file for your personal records.

'As is' vs. warranty

When drafting a bill of sale form, you need to decide whether you're selling the property “as is" or with a warranty. Each provides a different level of protection. If you don't include this provision, it's assumed that you're selling the property “as is."

The term “as is" basically means that you don't guarantee the condition of the property or whether it's free from defects. It protects the seller, should problems arise after the transaction.

For example, if you're selling a used car "as is," and the car breaks down after the buyer purchases it, you're not responsible for the repairs.

If the bill of sale contains a limited warranty provision, the seller needs to spell out exactly what damage is covered under the warranty and what parts and/or labor are covered during the specified warranty period, especially if the buyer will be responsible for part of the costs.

If the seller withholds information from the buyer, or misrepresents the value of an item, this may render a bill of sale null and void.

It's important that both parties are aware of the terms and conditions of the bill of sale before entering into an agreement so that each party can ask questions before finalizing the bill of sale.

When drafting a bill of sale form, you must make sure it complies with your state's legal requirements. While there are examples of bills of sale available online and elsewhere, in order to be sure that yours is in compliance, you may want to have an attorney look it over.