Learn How to Construct a Letter of Intent

Learn How to Construct a Letter of IntentA letter of intent is a common way to express your intentions to purchase a property without having to write a formal, legal binding contract. The letter of intent is presented to a seller in the very preliminary stages of a project. The intentions of a buyer are spelled out clearly and simply so the seller knows exactly how the buyer wants to purchase the property, and under what terms.

In my experience, a casual, personal letter to the seller is often the best received way to present your intentions to purchase a property. Some people insist on drafting a formal, multi-page, non-binding contract filled with legal jargon that can often intimidate the seller. A seller wants to easily see how the buyer wants to purchase the property, and determine if he or she can accept the presented terms.

Read on to learn how to construct a letter of intent and what to include.

Let’s investigate the contents of a letter of intent so you, too, can construct one before putting a property under contract.

A letter of intent (LOI) must have five basic elements in its content:

1. The buyer’s name

2. The property address and description

3. Your offer which includes:

A. Purchase price

B. Down payment

C. Terms

D. Conditions

E. Due diligence time

F. Closing time

G. Any other clauses or provisions

H. When a formal contract will be written up if the LOI is approved

4. A clause that makes the LOI non-binding

5. Your signature and a place for the seller’s signature

That is about it for the content, believe it or not; it is direct and straightforward without any fluff or nonsense. You are simply covering each detail so the seller knows exactly what the buyer intends to do.

Having an informal letter of intent also allows for easy negotiations. There is no filtering through legally written clauses and other such unnecessary information at this stage in the project. When the letter of intent spells out each detail clearly, the seller can come back with alternate terms of which he or she would be more accepting. This negotiation can go back and forth without the rewriting of lengthy pages that either party may misconstrue.

If the letter of intent is accepted, then the due diligence period will begin. It will continue until the time agreed upon by both parties in which, at the end of the term, a binding contract is constructed. Terms may change during this time if certain aspects of a property, previously not disclosed, are discovered. For example, there may be soil contamination in which the buyer will not want to purchase the property and will safely option out of the non-binding contract. Or, perhaps the property is in a lot worse condition than originally thought, causing the buyer to negotiate a decreased purchase price.

The letter of intent allows for all facts and figures to be verified so that the buyer understands exactly what he or she is getting in the property. If the buyer finds something that he or she can not accept, or something not originally expected, he or she can back out without any recourse or punishment.

Always use a letter of intent to present your preliminary offer to a seller. This will save you writing time, legal fees, and will be easily read and understood by the seller and any other interested parties who must be made aware of your intention to purchase the subject property.

Always construct the letter of intent with honest and detailed facts. Nothing must be overlooked as it can cause problems in the future. Be prepared to negotiate terms, and always know what you are willing to accept if you should get a counter offer.

Use this tool as an easy and direct way to purchase a property every time.

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