In a competitive market where you’re fighting against time and others to get the property you want, a letter of intent real estate may give you the upper hand.
The State of Florida has always been a prime location for real estate, with its west coast cities ranking among some of the top emerging real estate markets.
This can make buying, selling, and leasing real estate more difficult than in other states. An LOI will ensure both parties come to an agreement quicker before getting too involved in the drudgery of a purchase agreement.
What is an LOI in Real Estate?
The LOI real estate acronym means “letter of intent” that’s specifically for the real estate market. The real estate LOI can be used for negotiating leasing, purchasing, and selling properties.
In other markets, an LOI in real estate may also be referred to as a Letter of Understanding (LOU), a Memorandum of Understanding (MOU), or a Memorandum of Agreement (MOA).
So, What is a Letter of Intent in Real Estate?
A letter of intent in real estate is essentially a non-binding agreement between two parties prior to closing the real estate transaction. The letter demonstrates a level of commitment from both parties, and a level of exclusivity from the seller that they’re serious about moving on to the purchasing agreement.
The LOI is extremely helpful in speeding up the negotiations process as it doesn’t focus on the minor details of a purchase agreement which can usually be ironed out later.
The letter of intent will also serve as a reference point for future negotiations. Once signed, either party can refer to the letter and legitimately claim that this was initially discussed and agreed upon.
LOIs are not necessary for every situation. They can be used for commercial property or residential properties.
What is an Intent to Purchase Agreement?
A real estate intent to purchase agreement is a precursor to the final agreement. Instead of generating a purchase agreement as an offering document, you can send a much shorter intent to purchase agreement to outline the business terms.
The intent to purchase real estate agreement aims to set in writing the terms that were earlier agreed upon before the final sale agreement. This agreement will outline the property price, property description, financing methods, time frames, and escrow details.
The intent to purchase agreement is useful for a commercial real estate contract and for securing financing from a lender before the finalized contract.
While the intent to purchase agreement contains details of the formal agreement, it’s not a binding contract. The seller can still decide to sell to someone else and the buyer can still decide on a different property.
When Should a Letter of Intent to Purchase Real Estate Be Used?
A letter of intent to purchase property should be used once you’ve decided on the property you intend on buying. This will come after your research and property tours. In most cases, it’ll be beneficial for you, as a buyer, to quickly present the letter of intent for real estate purchase to demonstrate your commitment to moving forward with the purchase contract.
When You Want to Make the First Offer
Use the real estate LOI to present your preliminary offer to the seller, ahead of other interested buyers. You’ll save time, legal fees, and costly negotiations. Your LOI doesn’t have to include all the details, but it should include enough information to let the seller know you’re serious about moving forward with the purchase.
When You Want to Buy More Than One Property
If you’re purchasing more than one property, an LOI can save you valuable time and money. There isn’t a limit to how many LOIs you can send. Instead of waiting to finalize the sales contract before moving on to the next property, the LOI can help you filter through serious sellers of multiple properties.
When Should a Letter of Intent to Sell Property Be Used?
A seller may present a letter of intent to sell home or property to a buyer to begin the negotiation process. Though it isn’t very acceptable, some sellers may choose to send multiple LOIs to more than one prospective buyer.
When You Want to Negotiate the Selling Price
As a seller, you can come to an agreement faster by using your LOI to dictate favorable terms in the early stages. An LOI includes major factors like selling price and financing structures.
By stating your sale terms, you’re able to quickly determine which buyers can meet your demands or which buyer you’re willing to negotiate with.
When There Is More Than One Buyer Interested
As the LOI clearly states your terms, a buyer will be able to either agree to it or offer you a counteroffer. This can save you time on the negotiations process and when you have more than one buyer interested in your property.
How to Write a Simple Letter of Intent to Purchase Real Estate?
While an LOI is a straightforward letter, you should pay close attention to the language you’re using. A typical LOI is between 1-3 pages long, depending on the complexity of the property and proposed transaction.
Though the content of the letter may change, depending on the situation, the LOI should typically outline specific information about the property and sale terms. Here’s what should be included in a letter of intent:
Introduction
Start with an introductory paragraph. This paragraph should include the effective date and the purpose of creating the LOI. For example, you can include that “the letter of intent aims to indicate the basic terms for an agreement between a Buyer and the Seller”.
Information Of Involving Parties
Your next paragraph should explicitly indicate the parties involved in the transaction. Clearly state personal details like names and contact information and indicate who is the buyer or seller. You may also choose to include details of your real estate attorney, if necessary.
Property Details
Include a description of the property (whether commercial or residential) and the address. You may also choose to include specifics of the property like the number of bedrooms and area measurements.
Type of Transaction
The LOI should clearly outline the basic terms of the property purchase agreement. You should also include a paragraph stating the price you’re offering and the payment methods you intend to use. If you intend to use bank financing, include that information and if the payment is conditional on financing.
Specifics of Conditions of Purchase
Next, you should outline specific conditions of the purchase. This further strengthens the LOI and will make it easier when both parties decide to proceed with the property covenants.
Include specific information like:
- Closing date
- Closing costs
- Inspection period, including how long the buyer has to conduct inspections and other specifics of the inspection
- Seller’s obligation not to negotiate your terms of sale with other parties
- Date of acceptance
Closing Statement
Finally, include a sentence or two about how the LOI is not a binding contract followed by signatories of both parties and dates. This is also the paragraph that decides if the LOI is binding or non-binding based on Florida real estate law.
Free Real Estate Letter of Intent Template
If you’re considering preparing your own LOI, use one of our free letters of intent to purchase real estate templates below. The template provides a standard layout and sections on where you should include specific information.
These templates also provide a basis for what you need to include on your LOI or what you should be looking for if you receive one.
Choose to download the sample letter of intent to buy property PDF format or the letter of intent real estate template Word format.
Letter of intent residential real estate
Use these sample offer letters to purchase a property once you’ve decided to proceed with contacting the owner about buying their property.
Residential real estate LOI PDF | Residential real estate LOI Word |
| Coming soon! | Coming soon! |
Letter of intent to purchase commercial real estate
Use our LOI real estate template when purchasing commercial real estate.
Letter of intent to purchase commercial real estate PDF | Letter of intent to purchase commercial real estate Word |
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Sample letter of intent to purchase land template
If you’re interested to purchase land, use our sample letter to purchase land for reference.
Letter of intent for land purchase PDF | Letter of intent for land purchase Word |
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Sample letter of intent to sell property
If you’re selling your house or other properties, use these sample letters of intent to sell the property.
Letter of intent to sell real estate PDF | Letter of intent to sell real estate Word |
| Coming soon! | Coming soon! |
Need Help Crafting a Real Estate Letter of Intent to Buy or Sell a Property?
Real estate letters of intent aren’t as complicated as other legal agreements, but they can nonetheless be time-consuming and confusing. Choose a suitable law firm that can walk you through every step of the LOI and support you with legal advice later.
The attorneys at Cueto Law Group offer an extensive range of legal and business counsels to individuals, entrepreneurs, and corporations.
Need help crafting a solid letter of intent for your next property purchase? Contact us and let us help you with your LOI.
FAQs
Can a Seller Back Out of a Letter of Intent?
Yes, a seller can definitely back out of the letter of intent without any repercussions. The seller can also choose when to back out of a letter of intent. This is because most LOIs consists of non-binding language which is usually ambiguous and does not contain any legal, binding terms.
Even if the non-binding language used is not ambiguous, both parties are not bound to proceed with the transaction. The letter merely creates an obligation for both parties to negotiate in good faith.
The term good faith is subjective. While it’s in “good faith” for the seller to not back out of an LOI, they’re still not legally bounded to do so.
However, certain sections of the LOI may not contain non-binding language. For example, paragraphs outlining terms of confidentiality, purchase price, and disclosure are often the binding aspects of an LOI.
What is the Next Step After the Letter of Intent?
Once the letter of intent is signed, the next step for both seller and buyer is to negotiate details for the purchase agreement. This is also when the buyer will conduct due diligence. These are separate processes done simultaneously. It can take approximately 90 days to complete these processes.
This is the time when your property will be examined and the financing methods confirmed. Whether you’re the buyer or seller, it’s advisable to conduct your own due diligence by requesting documentation and speaking with a lawyer, if you haven’t done so already.
This is also when you’ll finalize the terms of the real estate contract. This is a formal and legally binding document that defines the terms of purchase. At this stage, you’re about 80% of the way to completing the entire process of purchasing real estate.
Who Sends an LOI?
Generally, in real estate purchases, the buyer sends the LOI to the seller. Though, there isn’t a set rule of who should send the LOI first. A seller is free to send a letter of intent to a prospective buyer if it fits the situation.
However, it’s assumed the party who prepares the LOI first has the upper hand as they’re setting the tone for the negotiations process
Who Should Prepare the Letter of Intent?
A letter of intent is usually prepared by your real estate agent, broker, or lawyer. While you can prepare the letter of intent yourself with available templates online, these professionals will help ensure you’re not accidentally creating binding terms the other party can enforce later.
Your lawyers will be able to prepare a fool-proof LOI according to Florida’s real estate law and help with any Florida Land Trust, if necessary.
They also make sure to avoid issues that can cause the entire deal to have to be reworked later on. This could change contract and negotiation fees, which doesn’t work in their favor.
There may be situations where a buyer and seller will enter into an LOI negotiation without the presence of their lawyers. In case, it’s always advisable to have a lawyer prepare you for the meeting and review the LOI before signing.
