A Letter of Intent is a document that outlines the general terms and conditions of an agreement between parties before the agreement is finalized. In real estate deals, a Letter of Intent is typical before entering large leases or an agreement to buy or sell commercial real estate.
A letter of intent should indicate to the broker or landlord that you are a true buyer who is prepared to enter the price and terms you have indicated if you're able to look at the specifics.
An effective LOI features a few key elements, including:
Introduction: Start your LOI with an introductory paragraph. This section should provide a general summary of the reason for the LOI (like the exchange of a piece of property).
Parties involved: Names the parties involved in the real estate transaction in the LOI. This includes the buyer, the seller, the broker, and any other third parties who may benefit or feel any effects.
Property Description: An LOI should include a detailed description of the exchanged property, including addresses, size, and lot boundaries.
Terms: LOI must include the terms of the offer, including (but not limited to) the intended sale price, land survey information, and other property details. Buyers should list their intended financial lender, as well as the closing date for the property.
Disclaimers: Although either party can back out of an LOI, it helps to include any information that can indicate why this may happen. LOI negotiations typically happen in good faith, so listing why a particular party may change their mind can help the other party properly prepare.
Closing statement: A closing statement helps summarize the main points of your LOI, clarifying what is at stake and both parties' goals.
Signatures: An LOI is only valid if all involved parties sign it. However, this still does not make the document legally binding.