What is a Letter of Intent (LOI) in Real Estate?
A Letter of Intent (LOI) is a preliminary agreement between a buyer and a seller that outlines the primary terms of a proposed real estate transaction. It serves as a stepping stone between the initial verbal offer and the final, legally binding Purchase and Sale Agreement (PSA).
Why use an LOI instead of a full contract?
Commercial real estate deals are complex. Drafting a 40-page contract takes time and legal fees. An LOI allows parties to agree on the "Big Picture" items first—Price, Closing Date, Due Diligence—before spending money on lawyers. If you can't agree on the price in a 2-page LOI, there's no point drafting a 40-page contract.
Key Sections of a Real Estate LOI
- Purchase Price & Deposit: Clearly state the offer price and how much earnest money (deposit) you will put down.
- Due Diligence Period: This is your "Free Look" period. You typically ask for 30-60 days to inspect the property, review financials, and check zoning. If you don't like what you see, you can walk away and get your deposit back.
- Closing Date: When will the deal officially close? Usually 30 days after Due Diligence ends.
- Confidentiality: Ensures the seller doesn't shop your offer to other buyers.
Is an LOI Legally Binding?
Generally, No. The terms of the sale (price, closing date) are usually non-binding. This means either party can walk away without penalty if a final contract isn't signed. However, specific clauses within the LOI—such as Confidentiality and Exclusivity—can be made binding.
Ready to make an offer?
Once your LOI is accepted, you'll need to move to the due diligence phase. Use our Transaction Checklist to ensure you don't miss any critical inspections.
