A real estate letter of intent is used in situations where a buyer and seller have agreed to a sale, usually in the absence of a real estate agent. Agents utilize standard forms approved by real estate boards to cover all of the details associated with the purchase and sale of a property. A real estate letter of intent can also be used when two parties are finalizing an agreement to lease a residential or commercial property.
The following provides more information about what to include in a real estate letter of intent, how to write them, and a sample letter for residential real estate, for commercial property for both leasing and purchasing situations.
What is a Real Estate Letter of Intent?
A real estate letter of intent covers the broad terms that have been negotiated between the buyer and the seller. Once you have this non-binding agreement signed and dated by both parties the agreement can be turned over to legal counsel to create legal contracts outlining the terms of the purchase agreement. Once the purchase or lease agreement is signed by both parties the agreement is binding on both parties.
If both parties wish the real estate letter of intent to be binding on both parties, an addendum should be added adding the binding status and signed and dated by both parties. Without the addendum, it is unlikely that courts would accept the agreement as binding and the agreement would be dismissed.
Letters Of Intent To Purchase Real Estate
Letters Of Intent To Sell Property
How to Write a Real Estate Letter of Intent?
Several steps are leading to signing a real estate letter of intent include:
- The buyer or lessee visits the property
- The buyer and seller negotiate the price, closing date, and details
- The owner and the lessee negotiate the rent, dates, expenses, and appliances that may be included or excluded in the agreement
- The letter of intent is prepared and signed by both parties
When the buyer or lessee visits the property many factors are being considered, including:
- Does the building suit their needs?
- Is it in the right location?
- Are there any appliances, plumbing, window, heating, roof problems?
- Are there any structural defects or visible damage that would impact the price?
- What appliances are included
- Are utilities included in the lease?
Once the buyer/ lessee has reviewed the property and decides to proceed, they can negotiate the details including price, closing date, property inspection terms, appliances to be included, and any other details that are important to the buyer/lessee. All of these details should then be captured on a real estate letter of intent, signed by both parties, and dated.
Several more steps follow once the letter has been prepared and signed
- A binding agreement is prepared by legal counsel
- The buyer/lessee inspects the property
- The deal closes and the buyer receives the keys
- The Lessee receives the keys and moves in
What to Include in a Real Estate Letter of Intent?
The following items should always be included in a letter of intent to avoid any misunderstanding between the buyer and the seller or the lessee.
- Names of the buyer and seller
- Legal property address
- Property type – residential or commercial
- Transaction Type
- Financial terms
- Payment Process
- Financing conditions
- Conditions of purchase
- Closing date
- Closing costs
- Possession date
- Inspection of property
- Disclosure requirements
- Standstill agreement
- Lease Conditions
- Late Rent
- Security deposit
- Subletting
- Appliances and furniture
- Parking
- Pets
- Expense obligations
- Binding agreement
- Other provisions
- Currency
- Governing Laws
- Acceptance
More Details Regarding a Real Estate Letter of Intent
Transaction Type – indicate if this is for purchase or lease of the property
Financial terms – indicate all financial terms e.g. rent, payment date, down payment
Payment Process – post-dated checks covering the rent, electronic transfer, total on the closing of the purchase deal
Financing conditions – if purchasing the property, there may be a condition for financing approval
Conditions of purchase – if purchasing the property
- Closing date – Closing date and extension conditions if any
- Closing costs – indicate who is responsible for closing costs
- Possession date – date the buyer is given possession of the property
- Inspection of property – agreement to have the property inspected
- Disclosure requirements – the date when the buyer must disclose any findings based on the inspection and possible impacts on the binding agreement. The seller will have X days to accept or terminate the agreement
- Standstill agreement – an agreement by the buyer to not negotiate the sale of the property with other buyers while the agreement is in force.
Lease Conditions
- Late Rent – conditions and penalties associated with late rent payment
- Security deposit – amount and the due date upon signing a lease agreement
- Subletting – restrictions concerning subletting
- Appliances and furniture – statement of what appliances and furniture are supplied by the landlord
- Parking – statement of whether parking is available, location and price if any
- Pets – statement of whether pets are allowed and any restrictions
- Expense obligations – for leases, the renter agrees to pay monthly expenses such as heating and electricity
- Lease Term – the length of the lease stating start and end dates
- Lease termination – conditions that would cause the lease to be terminated
Binding agreement – the letter of intent is considered nonbinding unless an addendum is added binding the two parties to this agreement
Other provisions – security deposit required and time when the security deposit is returned after the lessee has left the property.
Currency – state the currency type i.e. US$
Governing Laws – indicate the State that the letter of intent will be governed by Acceptance – an agreement by both parties to date and sign the agreement
Summary
A real estate letter of intent documents all of the discussions the seller and the buyer agree to, concerning leasing a property or purchasing a property. While the letter is not considered a binding agreement, it is expected by both parties that legal counsel will take the details contained in the letter and create a binding agreement. Once you sign the binding agreement, the deal is considered agreed to by both parties and binds both parties to the details.
The details contained in the real estate letter of intent are the result of negotiations between the two parties and are considered completed when both parties have signed off on the agreement. Real estate letters of intent can be used for leasing residential and commercial property as well as purchasing residential and commercial property.
