A Real Estate Letter Of Intent (LOI), also known as a Letter Of Interest, is a preliminary document that outlines the basic understanding between two or more parties regarding a potential real estate transaction. It serves as a preliminary agreement before the official, legally binding contract is finalized. Let’s be clear, a LOI is NOT binding, unless it’s clearly indicated and accepted.

Key aspects of a LOI include:

• Function: Expresses seriousness, the interest and general willingness of both parties to engage in real estate business. It outlines the main terms: It summarizes the key points of the potential agreement, such as price, timing, and scope. Facilitates negotiation: It provides a foundation for further discussion and negotiation of the final purchase & sales contract.

• Characteristics: Non-binding; in most cases, a LOI is not legally binding, allowing either party to withdraw from the deal without substantial legal consequences. The deposit, if any, is refundable. However, we may include very specific clauses, a frequent one is a mutual confidentiality clause, and that may reflect a form of commitment. Formal document: Although not a legal contract, it is a formal document written in a business letter format. Varying complexity: Depending on the situation, a LOI can range from a simple one-page document to a more detailed multi-page document, as ours usually are, to provide as much context and explanation as possible.

• Common uses: Business transactions: LOIs are commonly used in mergers and acquisitions, joint ventures, real estate deals, and loan agreements.

Overall, a Letter Of Intent is a useful tool to express initial interest, lay out the groundwork for a deal, and move towards a formal agreement. At Proxima Investors, we use LOIs on both the Home Sellers’ and Home Buyers’ sides, depending on the situation. Our deals typically start with detailed questions about the Home Sellers’ situation, followed by thorough explanations of the exact type of deal that best suits the Sellers. This creates a negotiation that can greatly benefit from an early LOI to design the framework of the deal, demonstrating our seriousness and commitment to a deal within parameters of good faith. The binding contract then follows, creating obligations and responsibilities for both parties involved. Our LOIs change over time as we adjust them to provide the best possible results and may vary based on the specific situation. We may opt not to write one if so the Seller desires or greatly benefits from, especially in the interest of time. In regards to Rent-To-Own deals, we also write an LOI for the Buyer to review before a final contract, ensuring that the deal is understood completely by the Buyers as well.

In conclusion, LOIs are a valuable tool that we use frequently and will continue to use in the foreseeable future. They serve as an advanced version of a real estate offer to purchase, providing a more complete picture of the deal, without the need for formal acceptance or any payment.

They are a great step towards a successful real estate transaction.