What Is an LOI in Real Estate And How to Write One

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Written By Justin McGill

DealBloom aims to share the latest tips and strategies to help realtors, brokers, loan officers, and investors navigate the world of real estate.

If you’re thinking of buying a property, you may have come across the term “LOI” and wondered what is an LOI in real estate.

LOI is an acronym for Letter of Intent. In real estate, it’s used to outline the key terms of an agreement between two parties before they enter into a more formal contract.

As someone who has been through the process of buying a property, I can tell you that an LOI can be extremely beneficial. It helps to protect both buyers and sellers by outlining all major aspects of the deal upfront so that there are no surprises later on. And if any disagreements do arise, having an LOI gives both parties something to refer back to so that everyone is on the same page.

The process of writing an effective LOI will vary depending on whether you’re working with a real estate agent or not. If you are using one, they will likely take care of most (if not all) of the negotiation for you and draw up the final document for your signature. However, even if you’re going at it alone, don’t worry – I’m here to walk you through what is an LOI in real estate so that your offer stands out from the rest!

What Is an LOI in Real Estate?

A Letter of Intent (LOI) is a document used in the real estate industry. In commercial real estate, the LOI is often referred to as “The Handshake”.

The Letter of Intent signifies an official offer to purchase a commercial real estate property.

An LOI is a helpful way to express interest in a property, as well as provide a summary of your proposal, before getting into the details of a transaction.

A letter of intent can be anywhere from 1 to 2 pages long.

In the real estate industry, the LOI does not have to include all of the details of a transaction. This will all be discussed within the PSA.

A Letter of Intent is not an actual contract but is a document that expresses interest.

A letter of intent is a great way to show your interest in multiple properties without having to spend a lot of money.

Submitting more LOIs will increase your chance of closing more sales.

Why is an LOI Important?

When making a sales offer, buyers want their proposal to be taken as seriously as possible. They want to propose as attractive and persuasive as they can to increase the chance of having the deal go through.

An LOI is important because it allows the buyer to communicate their offer clearly and concisely, as well as build credibility with the seller. By having a well-written LOI, the buyer shows that they are serious about making an offer and increases the chances of having their offer accepted.

A good LOI helps to ensure that both the buyer and seller are on the same page before moving forward with the transaction.

It’s that stage between initial discussions and the final agreement which can be complicated.

An LOI is important because it allows both the buyer and seller to keep track of the terms of the contract and ensure that both parties are serious about the transaction.

The LOI is a preliminary agreement between parties that outlines the basic terms of a transaction.

Once you’ve signed the sales agreement, it’s time you move on to the purchase contracts.

Commercial Real Estate Letter of Intent

During the early stages, a prospective buyer can sign a letter of intent as an offer and a sign of commitment to move forward with the deal before entering into an official contract.

A Letter of Intent is a document that outlines the terms of an offer without all of the complex languages that are required in a purchase agreement.

An LOI is important because it is the initial phase of the process to show serious interest in the property.

After an LOI is signed, further diligence and negotiation take place before both parties sign a purchase agreement or lease.

After the LOI is signed, the terms of the deal can still be changed, and either party can back out at any point during the due diligence and verification processes.

Keep in mind that the information in an LOI can vary depending on what kind of property is being sold. Some common components include:

  • An introduction explaining the purpose of the letter.
  • The names and contact information of the landlord and tenant.
  • Full address and/or legal description of the property.
  • Purchase price of the property
  • Financing terms and contingency clauses.
  • Mortgage escrow and title responsibilities.
  • Inspection details.
  • Payment of real estate taxes.
  • Details of due diligence period.
  • Closing costs and date.
  • Commission statement.
  • A closing statement summarizing the steps after the LOI is signed.

Is a Letter of Intent Binding or Non-Binding?

A legally binding LOI will bind both parties to the agreement outlined in the document.

If you want your letter of intent to be non-binding, make sure to include language indicating that the terms in the document are non-committal and non-binding. This will help prevent any misunderstandings or confusion down the road.

The language used in (or omitted from) a letter of intent can greatly impact how that document is interpreted.

If an investor wants to secure a property but is not ready to offer earnest money, a binding letter of intent can be used to compel the owner to halt negotiations with other potential buyers or renters. This type of letter sets an expiration date for when the investor must sign a purchase agreement or lease, or else the owner is free to continue talks with others.

A binding letter of intent includes language that legally obligates the parties to take certain actions, while a non-binding letter of intent does not.

Words like “offer,” “accept,” “agree,” and “commit” in a binding letter of intent create a contract between the parties.

In contrast, words like “presently intends,” “expects,” or “may” in a non-binding letter of intent indicate that the parties are not yet legally bound to anything.

A letter of intent is not a legally binding contract. However, it can be used as evidence of an agreement between two parties.

A letter of intent is a document that allows an investor to explore a property further and assess the financing available without taking any risks. If the deal goes south, then they can easily back out. This protects the parties involved in the sale and ensures that things go smoothly.

The seller is under no obligation to take the property off the market and is not legally bound to stop other deals they may be in.

An LOI is a document used to finalize the main points of a deal before all of the legal work begins.

An LOI is an important tool that helps ensure all parties involved in a transaction are on the same page from the outset. By conveying concerns and expectations early on, an LOI can save time and prevent misunderstandings down the road.

An LOI is a document that outlines the main points of a deal. By agreeing on these points, the tedious task of filling out and signing all the documentation can be expedited.

The LOI is a document that helps outline the intentions of both parties at the start of a deal so that there is no confusion or wasted time.

It’s recommended that all commercial transactions begin with an LOI. Before a broker can formally submit an LOI, he or she will first have to send it out to a buyer/tenant for approval.

After the LOI is signed, the real estate agent will send it over to the listing agent to begin the negotiation process.

As a negotiation instrument, the LOI helps both parties reach an agreement on the terms of the lease or sale of a property. It is a non-binding proposal between the buyer and seller or landlord and tenant of a commercial property.

To ensure the LOI is not legally binding, you should include a sentence that clearly states that it is not a binding contract.

Since the LOI is not legally binding, neither party is obligated to follow through on the promises made in the document.

An LOI is simply a document that expresses a desire to enter into a formal agreement to purchase or rent a commercial space. Any of the parties involved can issue an LOI, which signals that they are serious and committed to moving forward.

Conclusion

What is an LOI in real estate? A letter of intent is a great way to make sure you’re getting the best deal on your property. Here we discussed what you need to know about them and how to write an effective one.

Justin McGill