How Do I Price My Goods Ethically?

Answered by Shaykh Umer Mian

Question: Assalamu alaykum

I do not know how much to price goods or services ethically. I do not want to overprice something to the point of immoral/unethical standards. Are there any rules to pricing and selling? Could you guide me to reading materials that are like a crash course on Islamic transactions?

Answer: Wa alaikum as-salam wa rahmatullahi wa barakatuhu

With regards to your first question:

In general, it is permissible to conduct a sale for any price agreed upon by the buyer and seller. However, sales may become prohibited due to deception or undue harm. The Messenger of Allah ﷺ said:
“Do not go forward to meet the caravan (to buy from it on the way before it reaches the town). And do not urge buyers to cancel their purchases to sell them (your own goods) yourselves, and do not practice Najsh. A town dweller should not sell the goods for the desert dweller. Do not leave sheep unmilked for a long time, when they are on sale, and whoever buys such an animal has the option of returning it, after milking it, along with a Sa of dates or keeping it. (Bukhari and Muslim).”
In this hadith, the Messenger of Allah ﷺ has prohibited a number of business practices that were prevalent in his time.

“Going forward to meet the caravan” (talaqqi ar-rukban) has two explanations given by the fuqaha:

1) Deceiving the people of the caravan by buying from them at a price lower than what they could have received in town. This has been prohibited due to the deception involved. If there is no deception (e.g. the people of the caravan are well aware of the higher price in town but still choose to sell at the lower price), then the sale is permissible.

2) Buying from the people of the caravan in order to monopolize the product and sell to the people of the town at an exorbitant price, even though they are in dire need of the product. This has been prohibited due to the undue harm it inflicts upon the people of the town. If there is no undue harm to the people of the town (e.g. the people of the town are not in need of the product or are able to acquire it elsewhere), then the sale is permissible.

“Urging buyers to cancel their purchases” refers to a situation where a buyer and seller have agreed on a price and are ready to complete the sale (or have already completed it), and then a third party offers the buyer a lower price and encourages him to cancel the sale. This has been prohibited because it creates enmity between people. Note, however, that if the buyer and seller have not yet agreed upon the price and/or the sale, it would be permissible for a third party to come and offer a better price. This is essentially how auctions work, and the Messenger of Allah ﷺ permitted sales by auction.

“Najsh” refers to the practice of deceptively inflating the price of an item beyond its fair market value. For example, a seller employs someone to pretend to be a buyer. When a real buyer comes and offers a price for an item, the pretend buyer feigns interest in the item and offers a higher price. He continues to do this until the price is jacked up beyond its fair market value. This has been prohibited due to the deception involved.

“A town dweller selling to a desert dweller” refers to monopolistic practices that cause undue harm to people, similar to what was described for “going forward to meet the caravan.”

“Leaving sheep unmilked” refers to a type of deceptive practice in which sheep are left unmilked so that their udders become large and swollen. Seeing this, a buyer would be led to think that the sheep give more milk than they actually do. Hence, the buyer would offer a higher price than what the sheep are actually worth. This has been prohibited due to the deception involved.

As is apparent from the above, the general principle established by this hadith is that sales that entail deception or undue harm have been prohibited in the Sacred Law.

Source: al-Durr al-Mukhtar

With regards to your second question:

For general introduction and background, you may view/read the following materials:

Deal or No Deal (Business Transactions in Islam)
by Mufti Muhammad ibn Adam al-Kawthari

An Introduction to Buying and Selling in Islam
By Mufti Muhammad Taqi Usmani

Raising the Veils from the Fiqh of Sales (see article reproduced below)
by Shaykh Faraz Rabbani

For questions about specific issues related to the Islamic law of sales and business transactions, you can search on SeekersGuidance and Darul Iftaa.

Ultimately, though, there is simply no substitute for studying with a qualified teacher. SeekersGuidance offers courses on the Islamic Law of transactions.

Wassalam,
[Shaykh] Umer

Raising the veils: An Introduction to the Fiqh of Sales
[DRAFT VERSION: © Faraz Rabbani, 2002]

Based on al-Majalla and some of its commentaries.

Definition of a Sale: exchange of something of value for something of value.

Conditions of a sale (3):

The following are necessary for a sale to exist:

Integral – valid offer and acceptance (verbal or non-verbal)
Transacting Parties.
Item of sale

1. Integral:

A valid offer and acceptance, which can be verbal, non-verbal or written.

Two conditions for the integral to be valid:

Item has to be explicitly / implicitly stated, item is more central to contract than the price
Price has to be mentioned or implicitly understood.

Note: bargaining / haggling is not considered a valid offer

Example: a price tag on a book is understood as an implicit price

2. Transacting Parties:

Must have two separate parties for a valid sale

3. Item of Sale:

Must be present or all of its major attributes must be known

Types of conditions (4):

There are four types of Conditions:

Validity – that which must be present for a contract to be valid – if any condition is not present, the contract is invalid (batil).

Soundness – that which must be present for a contract to be sound. If not present, contract is corrupt (fasid) and it is necessary (wajib) to cancel the contract.
Completion – that which must be present for a sale to be complete. Seller has right of completion.
Binding – that which must be present for a contract to be binding. Must be free of options that would allow the transacting parties to cancel the contract. (e.g. Right of return).

1. Conditions for Validity of a Sale:

If any of these conditions are not met, the contract is invalid and there is no change of ownership even if the transacting parties have exchanged goods. Within validity there are five types of conditions.

i. Conditions of Form of Offer and Acceptance:

Words must be definite where they indicate a past or present transaction but not future.
Offer must correspond to acceptance. Contract must be completed within the same session.
Mail, email and fax are not considered different sessions
Session: Physical separation or change of focus ends the session (if bring lamb, session is over)
Item being sold can’t perish before sale is complete
Offer can be rescinded before an acceptance is made.
Offer can’t be a question.

ii. Condition of contracting parties:

Both parties must be of sound mind and must reach age of discernment (7 years old by law).
There must be 2 separate parties: One person cannot be buyer and seller in contract

iii. Conditions relating to item being sold

Item must be in existence at time of transaction
Cannot sell something that does not exist.
Item must be something the Shari’a considers of value, (no pork)
Item must have value (no dust from street)
Item must not be haram (no alcohol)
Must be owned in and of itself:
Cannot sell fish in the sea.
Must be possible to transfer ownership.
Cannot sell a runaway slave

iv. Conditions relating to the Price:

No exact price needs to be mentioned, the fact that there is a price must be decided but not the exact price (this is part of soundness.

Price must be something of value not necessarily acceptable in the Shari’a (this is valid but unsound i.e. corrupt)

v. Conditions relating to Law of the Land

Contract must follow the law of the land (if the law requires that a car must be registered by relevant agency when purchased or sold, then by the Shari’a there is no transfer of ownership if not done) unless the law specifically and directly contravenes the Shari’a.

2. Conditions of Soundness of a contract:

If any of these conditions are not present the sale is corrupt (fasid) and it is necessary (wajib) to repent and cancel the contract.
The difference between an invalid (batil) transaction and a corrupt (fasid) transaction is:

Invalid: contract is invalid if there is a fault in the essence, i.e. something is wrong with the offer and acceptance or the actual item being sold.

Corrupt: in itself, a corrupt transaction is valid because the essence of the item is acceptable. (i.e. the offer and acceptance are valid) However some of the attributes are in question i.e. color of a car not agreed upon at time of contract

General conditions of Soundness

There are six types of defects:

Gross uncertainty (jaahala)
Compulsion
Defining a time limit of ownership
Element of deception (gharar)
Harm
Existence of an Inappropriate Condition:

1. Gross Uncertainty – any major uncertainty that may lead to a problematic dispute when it will not be clear which party is in the right (i.e. buying a sheep from a herd without specifying size and weight). There are four areas where uncertainty can occur.

a) Uncertainty in item of sale – uncertainty in terms of category, type or amount with respect to buyer only. This uncertainty applies to major attributes of item. For smaller items such a pen where there is not much room for uncertainty, this applies less.

b) Uncertainty in Price – price must be clearly defined. You cannot say “I sell this too you at market price.”

c) Term – i.e. with respect to deferral of payment. Date of payment must be fixed and clearly defined. A deferred payment is valid as long as the payment date is clearly defined. It is allowed for seller to say “pay me later” but the buyer should know that seller can claim the price from him at any time thereafter if a deferral date has not been specified. If you defer the payment, it must specify for a specific date or within a reasonably known time (i.e. I’ll pay you when the Hajjis come back). It is not allowed to fix a date for repayment of a loan. There is legal recourse for an unpaid loan as long as it was stipulated in a contract that the loan was to be paid back. However, a specific date for repayment cannot be stipulated in the same contract and is not legally binding.

d) Uncertainty in means of guaranteeing a sale – guarantor or collateral must be explicitly known

2. Compulsion:

Compelling a person to participate in a transaction via threat of bodily harm makes the sale corrupt unless buyer agrees to sale.

3. Defining a time limit of Ownership:

Cannot specify a time of ownership. Once a transaction is complete cannot make it a condition that property be returned or resold by the buyer

4. Element of Deception (Gharar):

Deception in an items attributes – i.e. cannot sell a cow on condition that it gives 15 liters of milk a day. Could have deception i.e. how can you prove the amount of milk given

5. Harm:

Any sale in which there is harm for the seller to sell the property (i.e. selling the main beam in the house while it is still holding up the house)
Once the item has been removed or transfer of ownership complete, the corruption has been lifted. ?

6. Existence of an Inappropriate Condition:

Condition in which one of the parties benefits and is not a condition in the Shari’a or customary practice of the land does not entail it.
Nowadays most conditions are not inappropriate due to customary practice.

Specific Conditions for Soundness:

If item being sold is a transferable (non-fixed) item (i.e. clothes, food), the buyer must take possession of the item before reselling it. Possession means you have it in hand or there is no barrier between the buyer and the item.
It is allowable to resell non-transferable (fixed) items such as buildings or land because ownership is considered transferred right away after contract has been accepted.
Transactions of gold and silver must be completed within the same session i.e. before the 2 parties leave the session. This does not apply to paper money according to scholars from the sub-continent.

3. Conditions for Completion of a Sale:

The seller has personal right to complete the transaction, e.g. Firaz sells Umm Sahl’s furniture to Hassan and he agrees, however the sale is not complete until Umm Sahl agrees.

This right comes about in three ways:

i. Seller is owner of property and has right to deal with it. Seller is an approved agent of the property owner.

ii. There are two types of agents: conditioned and unconditioned. Unconditioned agent is when only general points requested. As long as general points have been met, owner is financially responsible for the agent’s transaction. Conditioned agent is when specific points are requested. If the owner stipulates conditions, the agent must abide by them and the owner is not financially responsible if he does not.

iii. Agent by Shari’a: like a Qadi or Wali, someone responsible for another’s property because the property owner is unfit to perform own transactions. The agent cannot benefit personally from any transaction he makes on behalf of the one he is responsible for (Amana).

4. Conditions of Sale being binding:

Item must be present or major attributes of item must be made clear at the time of buying (i.e. buying from a catalogue)
Sale must be free from any options that allow either party to cancel sale. These options must be specified at time of contract.
These are some options which must expire before contract is binding:

Right of Cancel: buyer and seller have right to cancel transaction within three days if specified in contract. When this expires, the contract is binding.
If an attribute that was sought after is missing, buyer has right of return (i.e. buy a slave that is supposed to sing well and he actually doesn’t) If this attribute was made clear in contract, buyer has right of return.
Option to Specify: buyer has option to specify which specific good to buy within a specified time. Contract is not binding until time specified expires, (i.e. women wants to buy 1 of 3 hijabs but can’t decide so takes them home to decide – cannot be more than a 1 to 3 items ratio)
Option to return upon sight: if you see item for first time and don’t like something about it, you have right of return.
Option to cancel if there is defect in item being sold. If you buy an item and find there is a notable defect that would reduce its market value, there is right of return.

Compiled by:

Some brothers in Amman, from classes given by Faraz Rabbani.

عَنْ أَبِي هُرَيْرَةَ أَنَّ رَسُولَ اللَّهِ – صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ – قَالَ: «لَا تَلَقُّوُا الرُّكْبَانَ لِبَيْعٍ، وَلَا يَبِعْ بَعْضُكُمْ عَلَى بَيْعِ بَعْضٍ، وَلَا تَنَاجَشُوا، وَلَا يَبِعْ حَاضِرٌ لِبَادٍ، وَلَا تُصَرُّوا الْإِبِلَ وَالْغَنَمَ، فَمِنِ ابْتَاعَهَا بَعْدَ ذَلِكَ فَهُوَ بِخَيْرِ النَّظِرَيْنِ بَعْدَ أَنْ يَحْلُبَهَا، فَإِنْ رَضِيَهَا أَمْسَكَهَا وَإِنْ سَخِطَهَا رَدَّهَا وَصَاعًا مِنْ تَمْرٍ» “. مُتَّفَقٌ عَلَيْهِ.

( وَ ) كُرِهَ ( النَّجْشُ ) بِفَتْحَتَيْنِ وَيُسَكَّنُ : أَنْ يَزِيدَ وَلَا يُرِيدَ الشِّرَاءَ أَوْ يَمْدَحَهُ بِمَا لَيْسَ فِيهِ لِيُرَوِّجَهُ وَيَجْرِي فِي النِّكَاحِ وَغَيْرِهِ .
ثُمَّ النَّهْيُ مَحْمُولٌ عَلَى مَا ( إذَا كَانَتْ السِّلْعَةُ بَلَغَتْ قِيمَتَهَا ، أَمَّا إذَا لَمْ تَبْلُغْ لَا ) يُكْرَهُ لِانْتِفَاءِ الْخِدَاعِ عِنَايَةٌ ( وَالسَّوْمُ عَلَى سَوْمِ غَيْرِهِ ) وَلَوْ ذِمِّيًّا أَوْ مُسْتَأْمَنًا ، وَذِكْرُ الْأَخِ فِي الْحَدِيثِ لَيْسَ قَيْدًا بَلْ لِزِيَادَةِ التَّنْفِيرِ نَهْرٌ ، وَهَذَا ( بَعْدَ الِاتِّفَاقِ عَلَى مَبْلَغِ الثَّمَنِ ) أَوْ الْمَهْرِ ( وَإِلَّا لَا ) يُكْرَهُ ؛ لِأَنَّهُ بَيْعُ مَنْ يَزِيدُ ، { وَقَدْ بَاعَ عَلَيْهِ الصَّلَاةُ وَالسَّلَامُ قَدَحًا وَحِلْسًا بِبَيْعِ مَنْ يَزِيدُ }
( وَتَلَقِّي الْجَلَبِ ) بِمَعْنَى الْمَجْلُوبِ أَوْ الْجَالِبِ ، وَهَذَا ( إذَا كَانَ يَضُرُّ بِأَهْلِ الْبَلَدِ أَوْ يُلَبِّسُ السِّعْرَ ) عَلَى الْوَارِدِينَ لِعَدَمِ عِلْمِهِمْ بِهِ فَيُكْرَهُ لِلضَّرَرِ وَالْغَرَرِ ( أَمَّا إذَا انْتَفَيَا فَلَا ) يُكْرَهُ .
( وَ ) كُرِهَ ( بَيْعُ الْحَاضِرِ لِلْبَادِي ) وَهَذَا ( فِي حَالَةِ قَحْطٍ وَعَوَزٍ وَإِلَّا لَا ) لِانْعِدَامِ الضَّرَرِ ، قِيلَ الْحَاضِرُ الْمَالِكُ وَالْبَادِي الْمُشْتَرِي وَالْأَصَحُّ كَمَا فِي الْمُجْتَبَى أَنَّهُمَا السِّمْسَارُ وَالْبَائِعُ لِمُوَافَقَتِهِ آخِرَ الْحَدِيثِ { دَعُوا النَّاسَ يَرْزُقُ بَعْضُهُمْ بَعْضًا } وَلِذَا عُدِّيَ بِاللَّامِ لَا بِمِنْ .
(الدر المختار)