Letter of intent (LOI) to purchase real estate is used to outline preliminary terms of the further property purchase agreement. The parties are the property owner and the buyer. The goal of sending a letter of intent is to create a non-binding contract that contains the terms of the future purchase. The signing of the letter means the parties’ agreement to proceed with the transaction and create a binding contract.
Alternatively, both parties might agree that the LOI is legally binding by including the respective wording in the document.
The other type of letter of intent template is the letter to lease the property. In this case, the tenant and real estate owner agree to become the renter and rentee and outline the terms of the lease agreement that will be legally binding for both parties.
The letter of intent might concern both residential and commercial real estate.
Read further to learn everything you need to know about real estate letters of intent. On this webpage, you will also find a real estate letter of intent template that will become handy when you want to create your own customized letter of intent.
There are several steps that preceded creating a letter of intent and then follow it.
Step 1 – Checking the property
Negotiations between the parties cannot start without evaluating the condition of the residential or commercial real estate. The tenant should thoroughly check the state of the furniture, heating, plumbing, appliances, and negotiate in good faith any defects they might find on the property.
Step 2 – Discussion of the terms
Once conditions of the real estate are suitable for the rentee, they should craft and sign the letter of intent and give it to the real estate owner for review and signing. The owner will either agree to the general terms of the future contract or discuss the terms of the offer. The letter should touch on the important details of the agreement such as the price of rent, lease term and start date, frequency of payments, etc.
Step 3 – Creating a binding contract
When the main terms of the LOI are agreed upon by the parties, they can move on and create a binding contract that will comprise more details of the agreement. The real estate transaction will be considered finalized once the parties sign the contract.
Step 1 – Assessing the condition of the property
The property buyer should first thoroughly check the condition of the residential/commercial real estate. Usually, the first check is done themselves to see whether the real estate corresponds to their expectations. However, the buyer might not properly evaluate all the systems due to a lack of knowledge, which is why the parties commonly agree to invite a professional inspector to make sure the condition of the property meets all of the standards. However, this step generally takes place after the parties sign the purchase agreement.
The seller might also have done an inspection before putting the property on sale, that is, made a pre-listing property inspection. This lets them get ahead of any potential issues with real estate and make the buyer aware of any existing defects. But the buyer has the right to have their own inspection done on the real estate they are about to buy.
Step 2 – Presenting a real estate letter of intent
As the next step, the buyer who is interested in the property should present an LOI to the property owner. It will solidify their interest in buying the real estate and start negotiations of the terms of the real estate purchase agreement.
Step 3 – Making a purchase agreement
Real estate transactions call for negotiating a lot of details and a thorough inspection of the property. This is why a real estate purchase agreement is a substantial document that should be thoroughly crafted and reviewed by both parties. A lawyer’s examination of the document is a must-do before signing the agreement if the parties don’t want t0 miss out on any important detail that should be agreed upon.
Step 4 – Conducting an inspection
A real estate purchase agreement will most likely contain the clause about having the property inspected by a professional. The burden of paying for the inspection commonly falls on the buyer, especially when the property owner has conducted their own pre-listing inspection.
In case any defects are found, the buyer might want to renegotiate in good faith the terms of the contract and to ask the seller to fix the issues/decrease the price of the property, etc.
If no major faults are found during the inspection, or there wasn’t any conducted, the purchase agreement will be signed by the parties, and the title transfer process might start.
Step 5 – Closure of the deal
A proper purchase agreement should include the date when the ownership of the property is transferred to the buyer. In order to complete the real estate transaction, the parties might need to visit a notary, escrow company, or involve a titling insurance agent. The fees for the transfer of the ownership should also be paid.
A letter of intent to lease and a letter of intent to purchase real estate will be slightly different, but basic terms such as parties, purpose, date, price, etc. will be outlined in both.
Step 1 – Date, subject, and the purpose
The LOI should start with the effective date, intent of the sender, and the purpose of creating a real estate letter of intent.
For instance, if the LOI outlines the basic terms of the property purchase agreement, it should have a similar wording: “This letter of intent indicates the basic terms for an agreement between the Buyer and the Seller. After the letter of intent is constructed, a formal real estate purchase contract might be designed to the benefit of the parties involved.”
Step 2 – The parties
Further, the letter should indicate who the parties behind the letter are. If the property is on sale, the parties will be called the Buyer and the Seller, and their names should be included. If the property is to be leased, the parties are called the Lessor and Lessee.
Step 3 – Property address and type
The next information should be the address of the property and its type – commercial or residential.
Step 4 – Type of the transaction
The LOI should state whether it is intended to outline the basic terms of the lease or the property purchase agreement.
Step 5 – Financial terms, payment method
One of the basic conditions discussed in the LOI is the price and payment method.
In a letter of intent to purchase real estate, this paragraph should tell that the Buyer offers to purchase the property at a certain price. The Buyer should also include the payment method they intend to use when paying the purchase price. If they intend to use bank financing, they should include this information as well stating whether the payment is conditional on financing or not.
If a letter of intent is created to lease the property, the base rent, security deposit, and expenses should be included in the letter.
Step 6 – Conditions of the purchase (lease)
For an LOI that includes the basic terms of the property purchase, the following conditions of the transaction should be outlined:
For a letter that includes the basic terms of the lease, the following details are needed:
Step 7 – Binding effect
This section of the letter should tell whether the LOI is considered binding or not. If the parties agree to make it non-bonding, they should state that the terms included in the letter are only to help the parties reach the agreement in the future.
Step 8 – Governing laws
Usually, by governing law the parties consider the state where the real estate is located.
Step 9 – Acceptance
The LOI should include the statement about what is considered the acceptance of the offer. Usually, it is the signature of the recipient. The date by which it should be done should also be included in the letter.
If you consider entering into a real estate contract and you need a good letter of intent to negotiate the terms with the other party, use the template provided on our website. It will give you an idea of what to include in a letter that will let you move forward with leasing or purchasing residential or commercial property. Or, if you want to create a customized document in several minutes by just answering a set of questions, use our online document builder!
From: Holly Smith
734 Mayfair Dr.
Pearland, TX 77581
April 4, 2021
To: Sam Claus
160 Pulaski Lane
Amarillo, TX 79107
Re: Intent to Purchase Residential Property
4 Inverness Street, Austin, TX 78753
Dear Mr. Claus,
I am pleased to present this letter of intent to purchase the real property and any improvements thereon located at 4 Inverness Street, Austin, TX 78753, according to the terms and conditions described below.
1. Purchase Price. The purchase price shall be $300,000 (three hundred thousand dollars), payable in cash. A deposit amounting to $10,000 (ten thousand dollars) shall be paid upon the execution of a Purchase Agreement between the Seller and the Buyer, and payment of the remaining sum shall take place in bank-certified or wired funds at closing.
2. Contract. Within ten (10) business days after the acceptance of this Letter of Intent by the Seller, the Buyer shall proceed to draw the Purchase agreement containing the terms and conditions outlined in this Letter of Intent.
3. Conditions. The Purchase Agreement to be drafted between the Seller and the Buyer shall contain the following conditions:
4. Closing. Closing of the transaction should occur within 30 (thirty) days after the expiration of the Inspection Period.
5. Binding Effect. This Letter of Intent states the major terms of the agreement that the Buyer would be prepared to move forward with. This Letter of Intent is in no way a legally binding agreement between the Buyer and the Seller.
6. Acceptance. If you agree to the above-mentioned terms, please sign this Letter of Intent and return the duplicate copy within 5 (five) business days after the delivery.
Buyer: Holly Smith Dated: 04/04/2021
Seller: Sam Claus Dated: