Because a real estate transaction can be complex … purchase price, contingencies, title changes, money on the line and much more … documentation is critical.
That’s why real estate contracts are critical to your success as a real estate investor.
One of these types of contracts is a letter of intent in real estate, a preliminary agreement that outlines the terms of a sale or lease.
Whether you’re a beginner real estate investor looking for your first deal or a seasoned real estate investor looking for the next deal, you should know everything about a letter of intent in real estate — and have a working template of it.
In this article, we’ll break down everything you need to know about a letter of intent in real estate.
But that’s not all!
To make this article even awesomer (see what we did there?), we’ll also provide a letter of intent contract that you can use now and in the future.
Let’s get started!
What is a Letter of Intent in Real Estate?
A letter of intent in real estate is an initial agreement that comes before the formal contract.
That’s right — before.
Letters of intent in real estate are common in real estate transactions, outlining the buyer’s intent to purchase a property. In addition, it lays the groundwork for negotiations moving forward.
While a letter of intent in real estate doesn’t constitute an obligation to go through with the transaction — it’s a non-binding agreement — it provides the seller with the assurance that the buyer is committed to purchasing the property.
That being said, it can become binding when specific language, such as confidentiality agreements and exclusive negotiation periods, are included.
That is why buyers and sellers must pay close attention to the language used.
Components of Letter of Intent in Real Estate
Like any legal document, a letter of intent in real estate follows a structure.
While this structure can be tailored to suit individual needs, most investors and realtors follow the same broad structure.
Let’s take a look at the components that comprise a letter of intent.
Property Information
A letter of intent in must state detailed information about the property, such as:
- the address
- legal description
- any other distinctive features or considerations (e.g., zoning or easements)
Purchase Price and Terms
A Letter of Intent states the proposed purchase price and financing terms that may apply.
Note that these terms may change once the final contract is signed.
Got it?
Due Diligence Period
A key consideration in a letter of intent is the due diligence period allowing the buyer to carry out inspections or investigate the property.
The due diligence period is generally set in days such as:
- 30
- 60
- or 90 days
Deposit Amount
Another item found within a letter of intent is a deposit amount.
A deposit amount is a cash payment made by the buyer to show their good faith or commitment to purchasing the property.
Keep in mind that a deposit is not the same as a down payment.
Contingencies
This section of the letter of intent explains any conditions that are needed in order for the deal to progress, offering clarity to all parties involved.
Exclusivity Period
The exclusivity period states the time in which the buyer has total negotiating rights on the property.
The seller may not entertain other offers during this period.
If the deal fails to materialize before the deadline, the seller may consider other offers.
Closing Date
A letter of intent may set a deadline to finalize or close the deal.
Seller’s Representations and Warranties
The buyer may specify any assurances or guarantees they see fit to ensure the property or its legal status are in good condition.
Brokerage Fees
A letter of intent may state how brokerage fees will be paid and who is responsible for paying them.
Default and Termination Conditions
A key component in a letter of intent in real estate is the conditions by which the deal may be called off or terminated.
These stipulations may include situations that could void the agreement, such as violating a confidentiality clause.
Letter of Intent in Real Estate Template
Now that we’ve broken down what a letter of intent in real estate is, along with its components, let’s take a look at a template that you can use for future real estate transactions.
[Your Name]
[Your Address]
[City, State, Zip Code]
[Email Address]
[Phone Number]
[Date]
[Recipient’s Name]
[Recipient’s Title, if applicable]
[Recipient’s Company Name, if applicable]
[Address]
[City, State, Zip Code]
Re: Letter of Intent for Residential Real Estate Purchase
Dear [Recipient’s Name],
I am writing to express my intent to purchase the residential property located at [Property Address] (the “Property”). This Letter of Intent outlines the key terms and conditions of the proposed transaction, and it is not intended to be legally binding until both parties execute a formal purchase agreement.
1. Purchase Terms:
1.1 Purchase Price:
The proposed purchase price for the Property is [Amount] USD.
1.2 Deposit:
The Buyer agrees to submit an earnest money deposit of [Amount] USD within [Number of Days] business days from the acceptance of this Letter of Intent.
1.3 Financing:
This offer is contingent upon the Buyer securing satisfactory financing on or before [Financing Contingency Deadline].
2. Due Diligence:
2.1 Inspection Period:
The Buyer shall have [Number of Days] business days to conduct due diligence, including inspections, surveys, and any other necessary investigations.
2.2 Property Records:
The Seller agrees to provide access to all relevant property records and documents during the due diligence period.
3. Closing Terms:
3.1 Closing Date:
The anticipated closing date for this transaction is on or before [Closing Date].
3.2 Title and Survey:
The Seller agrees to provide a clear and marketable title and a survey of the Property unless otherwise specified.
4. Additional Terms:
4.1 Confidentiality:
Both parties agree to keep the terms of this Letter of Intent and all related negotiations confidential.
4.2 Exclusivity:
The Seller agrees not to entertain offers from other potential buyers during the negotiation period specified in this Letter of Intent.
5. Conditions for Termination:
Either party may terminate this Letter of Intent if the conditions specified herein are not met by [Termination Deadline].
6. Governing Law:
This Letter of Intent shall be governed by the laws of [State/Country].
7. Acceptance:
This Letter of Intent shall be deemed accepted by the Seller upon written acknowledgment or by the act of signing below.
If the above terms are acceptable, please indicate your acceptance by signing below. This Letter of Intent shall expire if not accepted by [Expiration Date].
Buyer:
[Your Full Name] Date: _______________
Seller:
[Recipient’s Full Name] Date: _______________
Letter of Intent in Real Estate: FAQs
Q. When is a Letter of Intent in Real Estate Used?
A letter of intent in real estate is commonly used during the initial stages of a potential real estate transaction as it is a preliminary agreement between the involved parties.
Q. Who Creates a letter of intent in real estate?
The buyer or seller may create the letter of intent, with both sides generally working together to draft the document itself.
Q. When does a letter of intent become legally binding?
While a letter of intent in real estate is not legally binding, it can become legally binding when certain provisions are included, such as confidentiality agreements or exclusivity periods.
The Bottom Line: Letter of Intent for Real Estate
In summary, a letter of intent in real estate provides the framework needed to negotiate, including specific conditions to be met prior to a given deadline.
That is why buyers and sellers rely on it to ensure the rules of the game are clear from the start.
A letter of intent provides all sides with the assurances they need to conduct smooth negotiations, ensuring a win-win for everyone involved.
And that’s why, whether you are a beginner or experienced real estate investor, a letter of intent is a must have for future real estate transactions.
