A letter of intent in real estate (LOI) is a critical document used to outline key terms in business transactions before drafting a formal contract. Whether you’re looking for a real estate letter of intent sample, wondering “Is a letter of intent to purchase real estate binding?”, or seeking to negotiate in good faith, this guide will walk you through its purpose, structure, and legal implications.
What is a Letter of Intent in Real Estate?
A LOI in real estate letter that states your intent to purchase property and serves as a non-binding or binding preliminary agreement between buyers and sellers. It establishes the framework for the proposed transaction, including the purchase price, lease terms, closing dates, and due diligence period before signing a legally enforceable contract.
While typically a non-binding LOI, some provisions, such as confidentiality, exclusivity, and dispute resolution clauses, may be legally binding and enforceable. Understanding these distinctions is crucial when structuring a letter of intent real estate sale.
Why Use a Letter of Intent?
When making an offer on a property, there are two primary approaches:
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Submitting a Purchase and Sale Agreement (PSA)
- A detailed, legally binding contract requiring legal assistance.
- More costly and time-consuming than an LOI.
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Using a Letter of Intent Real Estate Sale
- A streamlined, low-cost way to negotiate in good faith before drafting a formal agreement.
- Helps both parties clarify terms and reduce legal costs before committing.
A binding letter of intent real estate can simplify negotiations and set clear expectations, ensuring a smoother transaction process.
What Should Be Included in a Letter of Intent?
A strong real estate sample letter of intent to purchase property should include:
1. Buyer & Seller Information
- Names, addresses, and contact details of both parties.
2. Purchase Price & Payment Terms
- Initial offer price and financing details.
3. Due Diligence Period
- Timeframe for property inspections, financial reviews, and legal verification.
4. Closing Timeline
- Key deadlines for business transactions including financing and due diligence.
5. Lease Terms & Conditions
- If applicable, include lease term details, tenant obligations, and property use agreements.
6. Earnest Money Deposit
- The buyer’s good-faith deposit and refund conditions.
7. Contract Assignment Clause
- Whether the buyer can assign the contract to another party, such as an LLC or investment partner.
8. Personal Property & Fixtures
- Items included in the sale, such as appliances, equipment, or furniture.
9. Confidentiality & Non-Disclosure Clause
- Prevents both parties from disclosing transaction details without consent.
10. Exclusivity & Non-Solicitation Agreement
- Prevents the seller from marketing the property to other buyers during negotiations.
11. Expiration Date
- A deadline for the LOI’s validity to ensure a timely response.
12. Binding vs. Non-Binding Terms
- Most LOIs are non-binding, but some provisions, such as confidentiality, may be legally enforceable.
Is a Letter of Intent to Purchase Real Estate Binding?
A binding letter of intent to purchase real estate is rare, but certain clauses can be legally enforceable. To avoid confusion, clearly say if the LOI is binding or non-binding. Also, mention that a purchase and sale agreement will come after both parties agree on the final terms.
When to Use a Letter of Intent in Real Estate
A real estate LOI is commonly used in:
✅ Commercial real estate transactions
✅ Mergers and acquisitions (M&A) involving property assets
✅ Multi-family and investment property deals
✅ Lease agreements outlining key lease terms
A LOI in real estate sale allows parties to outline proposed transaction terms efficiently, ensuring clarity before committing to a formal purchase and sale agreement.
How to Write a Letter of Intent
Cover Letter for a Letter of Intent
A well-written real estate sample letter of intent to purchase property should include a professional cover letter, introducing the buyer and summarizing their intent to purchase.
Best Practices When Writing an LOI
✔ Keep it straightforward and concise to prevent misunderstandings.
✔ Use industry-standard term sheets for a professional structure.
✔ Specify whether the LOI is binding or non-binding.
A commercial real estate LOI can help investors negotiate in good faith while ensuring all critical details are covered.
LOIs in Mergers and Acquisitions (M&A)
Beyond real estate sales, LOIs are widely used in mergers and acquisitions. In M&A transactions, an LOI defines key proposed transaction details, such as:
- Acquisition structure
- Financial terms
- Due diligence process
- Contingencies for deal execution
Download a Free Real Estate Letter of Intent Sample
If you need a real estate letter of intent sample, I’ve got you covered. Download my free LOI template to structure your deals the right way.
👉 Get Your Free LOI Sample Here
Why You Should Always Use an LOI
Using a LOI in a real estate sale provides multiple benefits:
✔ Saves time by aligning expectations before drafting a full contract.
✔ Minimizes legal expenses by reducing unnecessary contract revisions.
✔ Protects buyers by securing a due diligence period before finalizing the deal.
Final Thoughts on Letters of Intent in Real Estate
A letter of intent in real estate serves as a valuable tool for buyers and sellers, ensuring transparent negotiations and structured agreements.
If you’re looking for a real estate letter of intent sample or guidance on drafting a binding letter of intent real estate, check out my book on Multifamily Real Estate Investing.
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