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The Anatomy of a Letter of Intent (LOI)

By 100 Percent Financed on May, 2 2019
100 Percent Financed

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When you begin to negotiate any real estate transaction, the first step toward closing is signing the Letter of Intent (LOI). As you scour the market for various real estate deals, you are going to encounter a wide array of properties for sale and for lease. When you begin to negotiate a transaction, both sides – the buyer and the seller – need to enter into a LOI. While this letter of intent is non-binding, it helps to get the main negotiating terms out in the open, which helps the deal run smoothly.

Some of the basic things that need to be addressed in the Letter of Intent (LOI) are listed below:

The Buyer and Seller

It’s important for your LOI to address who each party is. This should include the names of any legal entities, (i.e. LLCs, etc.) that are involved.

The Property’s Physical Description

A description of the property being sold or leased needs to be included. Other pertinent information to include in the description includes:

- Acreage (if applicable)
- General description of any improvements
- Square footage

Each of these items should be included in this section to ensure the right property is described.

The Purchase Price

This section includes the purchase price. It is also where all the terms of payment need to be listed.

Download the Letter of Intent (LOI) Document

Time Frame

Some of the items that need to be handled within the specified time period include:

- Delivery of Documents: The buyer has to have time to review certain important documents, including leases.

- Purchase and Sale Agreement: This is where the time frame to negotiate the final agreement is stated. If the buyer and seller are unable to reach an agreement within this time frame, then the LOI will expire.

Due Diligence

Be sure to include a list of items needed for due diligence. This includes access to the construction and accounting information related to the property in question. In many cases, sellers make a virtual “war room” online to ensure everyone has fast and easy access to the documents needed for due diligence.

Broker Fees

In most cases, it will be your broker who helps you create your LOI. They will ensure this information is included, as it guarantees their payment.

There could be a broker for the buyer and one for the seller. In most cases, the seller is going to pay theirs, but won’t want to cover the costs for the buyer. The fee is either a fixed cost fee or a percentage depending on the complexity and the size of the project in question.

The Closing Date

The closing date at this point is not set in stone. Here, it represents a date that the buyer and seller would like to close on.

Non-Binding Language

At the end of the LOI, it should state that the letter of intent is completely non-binding. What this means is that both parties can walk away from the deal at any point. The document you will find difficult to walk away from is the purchase and sale agreement, so only sign this if you are sure you want to go through with the sale/purchase.

All of the items listed here are crucial when you are negotiating to purchase a property. Keep in mind, the LOI is a document used for negotiation purposes and designed to outline the basic terms of the sale. There are still a number of smaller issues that need to be negotiated down the road.

At this point, “sweating the small stuff” is not necessary. Have the LOI signed as soon as possible so that you can move into the negotiation phase and get the entire process finished as quickly as possible.

Are you looking to purchase a property and need a way to submit the opening offer?
 We invite you to download our Letter of Intent (LOI) document to submit to the seller's real estate agent to make an initial offer and begin negotiations.

Download the Letter of Intent (LOI)

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