I use LOIs on commercial deals, large acquisitions, and any situation where both parties need to agree in principle before investing in full legal documentation. Here's how to write one that actually moves deals forward.
What Is a Letter of Intent?
A letter of intent (LOI) is a written document that outlines the proposed terms of a real estate transaction before a formal purchase contract is drafted. It's a preliminary agreement -- a "we both think we want to do this deal, and here are the rough terms" document.
LOIs are most common in:
- Commercial real estate transactions
- Large multifamily acquisitions
- Land purchases
- Any deal where custom contract terms need negotiation before legal drafting
LOI vs Purchase Contract: Key Differences
An LOI is a handshake in writing. It outlines what you want but doesn't obligate either party to close.
A purchase contract is legally binding. Once signed, both parties have legal obligations. Backing out can mean losing your earnest money or exposing yourself to a specific performance lawsuit.
LOI first, then contract. In complex deals, you negotiate the LOI to align on price, terms, and conditions. Once you're aligned, you (or your attorneys) draft the full purchase agreement based on the LOI's framework.
This is more efficient than paying attorneys to draft a full contract, only to discover the seller won't accept your price or needs terms you can't live with.
What to Include in a Real Estate LOI
Full property address and legal description, or at minimum the address and APN. Identify the seller by legal name.
2. Proposed purchase price
State your offer clearly. "Buyer proposes to purchase the property for $1,250,000."
3. Earnest money deposit
How much and when. "Buyer will deposit $25,000 earnest money within 3 business days of execution of a formal purchase agreement."
4. Due diligence period
The window you need to inspect the property. "Buyer requests a 30-day due diligence period from execution of the purchase agreement."
5. Closing timeline
Your proposed closing date or timeframe. "Buyer proposes to close within 30 days of the end of the due diligence period."
6. Financing terms
Cash or financed. If financed, your proposed loan terms. "Buyer intends to acquire the property with 25% down, conventional financing."
7. Key contingencies
List your major conditions: financing, satisfactory inspection, clear title, review of leases (for income property).
8. Exclusivity / no-shop clause
If you want the seller to stop marketing during your due diligence, include this: "Seller agrees not to solicit or accept other offers for a period of 30 days from acceptance of this LOI."
9. Binding vs non-binding language
Be explicit: "Except for the exclusivity and confidentiality provisions herein, this LOI is non-binding and does not obligate either party to complete the transaction."
When to Use an LOI
Use an LOI when:
- The deal is large or complex enough to warrant formal negotiation before legal docs
- You're dealing with commercial or multifamily property
- Custom terms are needed (seller financing, lease-back arrangements, specific closing conditions)
- You want exclusivity during due diligence to prevent other buyers from competing
- Both parties want to confirm alignment before paying attorneys
- You're doing a simple residential wholesale deal. Just go straight to the purchase agreement.
- Speed matters more than formality. LOIs add a step to the process.
- The seller is unsophisticated and an LOI might confuse or delay the process.
The Negotiation Value of an LOI
One underappreciated use of the LOI: it's a lower-stakes negotiation environment. Sellers are less likely to feel "locked in" by an LOI than a formal contract, which can make them more flexible on initial terms.
I've had sellers agree to terms in an LOI that they would have pushed back on in a formal contract -- simply because the LOI felt less final. Once they've agreed in writing and you follow up with a clean contract reflecting those same terms, most sellers don't want to re-negotiate.
Key questions to ask sellers before you write any offer
LOI in Context: The Bigger Deal Process
A typical commercial or large residential acquisition looks like this:
First, you analyze the deal -- numbers, market, rent roll, condition.
Then you submit an LOI with your proposed terms.
If the seller counters, you negotiate the LOI terms.
Once you have a signed or agreed LOI, you proceed to formal contract drafting, due diligence, and closing.
Full due diligence checklist for real estate investors
How to analyze a deal before you make any offer
A Simple LOI Template Walkthrough
Here's the structure I use for straightforward investment property LOIs:
Header: "Letter of Intent to Purchase Real Property" Date and parties: Buyer name, Seller name, Property address Section 1: Purchase price and earnest money Section 2: Due diligence period and inspection rights Section 3: Closing timeline and conditions Section 4: Financing (if applicable) Section 5: Key contingencies Section 6: Exclusivity (if requested) Section 7: Non-binding disclaimer Section 8: Expiration date Signature lines: Both buyer and seller
Keep it to 1-2 pages. An LOI that reads like a contract defeats the purpose.
Analyze Deals Before You Write Any Offer
Calculate your maximum allowable offer before writing the LOI
How to assign a wholesale contract
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FAQ
Is a letter of intent legally binding in real estate?
Most LOIs are explicitly written as non-binding, except for specific clauses like confidentiality or exclusivity. However, if an LOI contains all the essential elements of a contract (offer, acceptance, consideration, mutual assent), a court could potentially find it binding. Always have your attorney review the LOI and include clear non-binding language.
What's the difference between an LOI and a term sheet?
They're functionally similar documents. In real estate, LOI is the more common term. In commercial finance and larger transactions, "term sheet" is used interchangeably. Both outline proposed terms before full legal documentation is executed.
How long does a real estate LOI typically take to negotiate?
Simple LOIs can be signed within 24-48 hours. Complex commercial deals may take 1-2 weeks of back-and-forth. The whole point is to reach alignment faster than you would by going straight to a full contract.
Do I need an attorney to write an LOI?
For simple residential deals, many investors use their own LOI templates. For commercial properties, larger transactions, or when exclusivity clauses are involved, always have an attorney draft or review the LOI. The cost is minimal relative to the deal size.
Can a seller back out after signing an LOI?
Usually yes -- that's the nature of a non-binding LOI. However, if you've spent significant money on due diligence in reliance on an exclusivity clause and the seller walks away, you may have a claim for those costs. Document everything and consult an attorney if a deal falls apart after you've committed resources.