A Letter of Intent for Real Estate Purchase (LOI) is a preliminary written proposal that outlines the principal terms under which a buyer intends to acquire a specific property, establishing the framework for negotiation before the parties proceed to a formal purchase and sale agreement. In commercial real estate transactions, the LOI is a standard step between property identification and contract execution, allowing both parties to confirm alignment on material terms before investing in legal documentation, environmental assessments, and title searches.

The binding nature of a real estate LOI has been the subject of significant litigation. Under the Restatement (Second) of Contracts Section 27, preliminary agreements may be enforceable if the parties intend to be bound and the essential terms are sufficiently definite. Courts distinguish between binding preliminary commitments (where the parties agree to negotiate in good faith toward a definitive agreement) and non-binding expressions of interest. To avoid unintended binding effect, the LOI must contain explicit language stating that it is not a binding agreement and that neither party has any obligation until a definitive purchase agreement is executed and delivered.

In residential real estate, an LOI (sometimes called an offer letter or expression of interest) may precede a formal offer in competitive markets, signaling the buyer's seriousness to the seller or listing agent. However, in most residential transactions, the standard practice is to submit a formal purchase offer using state-approved forms rather than a separate LOI, making this document more common in commercial and investment property transactions.

Commercial property investors evaluating acquisition targets use LOIs to present proposed terms to the seller before committing to the expense of Phase I environmental assessments, ALTA title surveys, and legal due diligence. The LOI allows the buyer to gauge the seller's receptiveness to the proposed price and terms before investing in professional fees that can exceed $50,000 in complex transactions.

Developers assembling land for residential or commercial development projects submit LOIs to multiple property owners simultaneously, negotiating acquisition terms in parallel. The LOI serves as a planning tool that enables the developer to assess the financial feasibility of the overall project before committing to purchase individual parcels.

Tenants negotiating to purchase the commercial property they currently occupy use LOIs to formalize purchase discussions with their landlord. The LOI should address whether the existing lease remains in effect during negotiations and what happens to lease obligations if the purchase closes or fails to close.

1031 exchange buyers under IRC Section 1031 who must identify replacement properties within 45 days of selling their relinquished property use LOIs to demonstrate intent to acquire identified properties within the exchange timeline. The LOI helps secure the seller's cooperation during the compressed timeline of a tax-deferred exchange.

The property description must identify the real estate by legal description, street address, tax parcel number, and approximate acreage or square footage. In commercial transactions, the LOI should also identify whether the purchase includes personal property, fixtures, or intangible assets such as licenses, permits, or tenant leases in place.

The purchase price provision must state the proposed price and the basis for the valuation, whether based on comparable sales, income capitalization, replacement cost, or a combination. The LOI should specify whether the price is subject to adjustment based on the results of appraisal, survey, or environmental assessment.

Earnest money and deposit provisions should specify the amount the buyer will deposit upon execution of the definitive purchase agreement, where the deposit will be held (typically in an escrow account), and the conditions under which the deposit is refundable. Fully refundable deposits during the due diligence period are standard in commercial transactions.

Due diligence provisions should outline the inspection period during which the buyer may investigate the property's physical condition, environmental status, title encumbrances, zoning compliance, and financial performance (for income-producing properties). The LOI should specify the buyer's right to terminate without penalty during the due diligence period if the investigation reveals unacceptable conditions.

Financing contingencies should state whether the buyer requires mortgage financing and the timeline for obtaining a loan commitment. The LOI should identify the anticipated loan amount, loan-to-value ratio, and the consequence if financing is not obtained by the specified deadline. Closing timeline provisions should propose a target closing date and identify conditions precedent to closing including title clearance, survey approval, seller's delivery of estoppel certificates from tenants, and regulatory approvals.