Real estate negotiations and transactions can be pretty painful, and a lot of back and forth when they are not structured, and lawyers get involved earlier than necessary.
A good remedy for that can be real estate letters of intent; they can be a blueprint for a more formal and binding offer.
But many don’t know that they can still be considered a marketing and persuasion piece, and secondly, they can also be risky since not all of them would be regarded as non-binding.
If you want to learn more about these not so often discussed areas of LOIs, you may want to keep reading.
What is an LOI (Letter of Intent) in Real Estate? Is It Still a Marketing and Persuasion Element?
A letter of intent in real estate (LOI) is a document showing the intention to proceed with a real estate transaction, usually purchasing a property.
It is a preparational step before a formal offer and contract is made.
A buyer can produce the LOI for a seller or a tenant for a landlord.
So it’s not an actual offer and only states the buyer’s or tenant’s intent more formally than just something verbally or over the phone.
Many forget that while this sounds formal and legal, it can still be considered marketing and sales.
Why?
The desired result of a letter of intent is usually an accepted offer and, after that, a signed contract and a closing.
So you want to convince the respective party in a real estate transaction to like and trust you and act in your desired way so you can close.
This sounds pretty much like marketing and sales/persuasion to me.
Why?
Because the main aim in marketing is to get someone to like and trust you, and in sales/ persuasion, to influence someone to act.
The liking and trusting part is the precursor to being able to influence someone successfully to act.
So considering the above, you may want to remember that a letter of intent in real estate is still an element of marketing and sales (persuasion).
Thus, you can use persuasion and copywriting techniques to increase success rates.
Especially in the community of real estate investors, the letter of intent is often used as a marketing tool.
Because you can send it as a direct mailer, use it as a negotiation piece, or use it as a follow-up element.
Is an LOI the Same As An Offer?
An LOI or letter of intent in real estate is not the same as an offer because an LOI is generally non-binding, non-enforceable, and not in-depth.
But there are exceptions to this rule, as you will see later in this article.
Moreover, an LOI is much shorter than an offer and is usually a one-pager.
The Real Estate Letter of Intent to Lease
The letter of intent can also be used as a persuasion tool in a tenant-landlord situation, where a tenant wants to rent and occupy a particular property.
A few differences exist between a letter of intent to purchase and an LOI to lease.
It is more often used in commercial real estate and similarly contains a summary of the terms (in the case of leasing, the leasing terms) and further details of a potential contract or agreement.
What is the Purpose of an LOI (Letter of Intent)? Is It Even Important?
After my experience with various real estate transactions, I found an interesting pattern for lawyers.
The likelihood of finding a lawyer that was a good communicator and helping rather than making a negotiation more complicated is like convincing my 97-year-old grandma that she shouldn’t drive too fast to the grocery store anymore.
So in the case of an LOI, using it can get pretty important to avoid lawyers getting involved too early in a negotiation.
Or if you want to prevent them from torpedoing a negotiation in progress that in real estate sometimes can go back and forth for quite a while until all parties agree upon all terms.
Without an LOI in real estate, the following negotiation nightmare can develop.
Suppose you, as the buyer or your buyer client, has an idea under which price and terms he would like to purchase a particular property.
Verbally the buyer and seller agree to pay $350,000 for the seller’s property.
The buyer’s lawyer starts to draft a purchase agreement with this condition, including all the inventory in the price, and to show that he is really needed, he adds some additional clauses to protect their client.
The draft is sent to the seller, and then it turns out that the seller didn’t agree to include all the inventory in the price of $350,000 and the additional clauses added by the lawyer.
Unfortunately, and typically (in my own experience), it’s often not even a large item that can torpedo this agreement.
It can be the little cat scratching tree, for example.
Then they must agree again on a new price, including or excluding the items.
And again, the lawyer updates the draft.
Useful time goes down the drain with dollars to the lawyer drafting the documents.
A real estate LOI can come in handy before letting the lawyer’s horses loose and save you time and money.
It also streamlines and structures a real estate negotiation and can be a helpful blueprint for a purchase or lease contract.
So after verbally agreeing with a seller, your buyer client, with or without your help, could have drafted a letter of intent summarizing terms already agreed upon and adding additional terms they may not have thought of before.
Here also comes a particular style of an LOI popular with real estate investors, the three-option letter of intent giving the seller several options (clever persuasion-wise).
I will discuss this type of letter of intent later in this article.
What Comes After a Letter of Intent? The Next Steps
After your buyer client views a property, the negotiation process starts concluding with the letter of intent mentioned above.
Since it is ideally a blueprint for a purchase or lease agreement, the respective lawyers can now draft the contract, including the terms the parties agreed on.
After each party has reviewed the drafts and likely small changes made to the satisfaction of both, a binding agreement is made.
If it is a lease agreement, the transaction (deposit, first month’s rent, etc.) can be made once everybody has signed.
Typically, in the case of a purchase, the inspection period starts right away. Ideally, the agreement includes terms that allow the buyer to back out of the purchase when the property fails the inspection.
In that case, you can either renegotiate the price and terms of the property or the deal falls through.
If you get the green light from the inspection, the property title can be transferred to the new owner, and the closing occurs.
The latter usually involves an escrow company, a notary, you, the realtor, and a title insurance agent.
The Risks of Using an LOI in Real Estate – Is It Binding, and How Serious Is It?
Since I like to shine the light on both sides, I don’t want to withhold some risks from using a real estate letter of intent.
One question that many are wondering about is how serious it is and whether it is binding.
But a short disclosure beforehand: I am not a lawyer, and I am not your lawyer.
So you may want to consult with your lawyer before using a letter of intent in real estate about how they estimate the risk of it getting binding.
And yes, there are some risks, although what you often find researching is that it is non-binding.
However, in 1987 there was a court case (not in the real estate industry), Texaco Inc. vs. Pennzoil Co.
Texaco was found liable in that court case and received a $10.5 billion verdict, and the court based its decision on a press release stating they had an “agreement in principle” to purchase Pennzoil Co.
The court case details are a bit complex, not necessarily for the point I would like to make.
But what I wanted to show you with this case is that courts can consider a letter of intent as binding in some cases.
The LOI used was pretty detailed, as it can happen in a large transaction (source).
The same source I linked above mentions that this risk of a letter of intent becoming binding can be mitigated by not getting too detailed.
Hence a one-pager is not a bad idea.
What Is Included in a Letter of Intent in Real Estate?
The typical letter of intent in real estate includes the following elements:
- Your company name
- The property in question (e.g., type of property, address)
- Price(s) offered by the potential buyer
- The closing date (no concrete data, but instead “within X days”), because the offer hasn’t been made and/or accepted yet
- The terms the potential buyer offers or has already agreed on with the seller (e.g., deposit, due diligence clauses, etc.)
- The acceptance date (signaling the seller that after the date X, the potential buyer is no longer interested)
- Signature lines (although usually non-binding, a “psychological” commitment for the next action steps is achieved)
How to Write a Letter of Intent in Real Estate for Best Results
When preparing a letter of intent, it can happen quickly that you forget that you are still in the marketing and persuasion game.
Why?
Because it sounds formal and is quickly associated with a deal getting legally serious.
Don’t get me wrong.
Yes, a letter of intent is more serious than just sending out postcards or negotiating a real estate transaction loosely over the phone.
Still, you can consider it a piece of marketing since persuading the seller hasn’t been accomplished yet.
So you may wonder how to write a letter of intent in real estate for the best results or the highest chances of persuading the seller to agree with the potential buyer.
We can still use copywriting principles because we are selling/persuading with written words.
However, we won’t go ballistic and write a long-copy sales letter with all possible elements of persuasion.
It will maintain the structure of a one-pager LOI but with some injected short copy.
For example, let’s use one of my favorite copywriting formulas, “PAS,” short for “problem,” “agitate,” and “solve.”
This will be easier for a motivated seller, of whom you may already know the major pain points and the reasons for selling, which are usually more obvious.
But if you did a good job of getting to know why a retail seller wants to sell, you will also find out some less obvious pains.
To show you how I would do it, let’s use a simple letter of intent that I found in this video and rewrite it. It’s a three-option letter of intent real estate investors like to use.
I will explain later in this section why using three options is also a good idea for persuasion.
So the original text goes like this:
Letter of Intent to Purchase
Date: July 1, 2020
Name: Joe Motivated Seller Nezbit
Address: 123 Main St, Anywhere, USA
Thank you for the opportunity to review and consider your property. Based on the information that you shared with me and what I was able to gather on my own from the local market conditions, I am prepared to purchase your property in one of the following ways:
Option 1:
Purchase Price: $65,500 Cash
Option 2:
Purchase Price: $79,500
Down Payment: $5,565
Terms for Remaining Balance: Seller to carry back balance @5% APR. Only monthly Interest payments of $308.06 with full balance of $73,935 due in 12 years.
Option 3:
Purchase Price $95,000
Down Payment: $9,500
Terms for Remaining Balance: $85,500 to be paid in 200 equal monthly payments ($427.50).
To close in 14 days or less, all we need to confirm is the current status of any encumbrances and repairs.
Seller(s) Acceptance: ___________________
Buyer(s) Acceptance:___________________
Now, to apply the copywriting formula, PAS, let’s assume the sellers want to sell because they are baby boomers who, against the actual trend, want to downsize and move to a smaller place with just one story.
Let’s also suppose you could dig a bit deeper and find some deeper-lying pains, such as they want to sell because some of the cash is for the college debt of one of their children (the troubled one) and some for rainy days regarding potentially declining health.
We can’t write whole paragraphs about these problems, describe them in-depth, and even agitate them, so they feel even more urgent.
So for the problem and agitate part, we need to get into the two first sentences written at the beginning of the LOI.
The solving part is the three different options. So there is not much to modify.
And here is how I would modify this letter of intent in real estate to make it more persuasive.
Letter of Intent to Purchase (Persuasive Version)
Date: July 1, 2020
Name: Joe Motivated Seller Nezbit
Address: 123 Main St, Anywhere, USA
Joe, Thank you for your conversation on XYZ and allowing us to help your family’s future, prepare you for rainy days (a smart move), and now review and consider your property. (NOTE: Pain indirectly mentioned, and an ego-stroke injected via “smart move” as an additional persuasion element).
Based on the information that you shared with me in our conversation and what I was able to gather on my own from the local market conditions, I am prepared to purchase your property in one of the following ways:
Option 1:
Purchase Price: $65,500 Cash
Option 2:
Purchase Price: $79,500
Down Payment: $5,565
Terms for Remaining Balance: Seller to carry back balance @5% APR. Only monthly interest payments of $308.06 with full balance of $73,935 are due in 12 years.
Option 3:
Purchase Price $95,000
Down Payment: $9,500
Terms for Remaining Balance: $85,500 to be paid in 200 equal monthly payments ($427.50).
To close in 14 days or less, we need to confirm the current status of encumbrances and repairs.
Acceptance Date (after this date, I won’t consider your property anymore): July 8, 2020 (Note: another persuasion element – scarcity).
If you liked one of the options, please sign below. (Note: Added a call to action)
Seller(s) Acceptance: ___________________
Buyer(s) Acceptance:___________________
This letter of intent was drafted by XYZ & Associates LLC (Law Firm) (Note: This is another persuasion element you could use, which is “Authority”).
Although we can’t add too much sales copy and additional persuasion elements in a real estate letter of intent, it can be done carefully.
To summarize what I did:
In the introductory paragraph, I indirectly mentioned the underlying pain/need and stroked the seller’s ego a bit (“smart move”).
Three options were offered to the seller, which is a good idea to do persuasion-wise.
Why?
Because with one option, the seller is more likely to go or not to go with it.
With three options, the seller will automatically start to choose between one of them, coming less close to ditching all as it would happen with just one choice.
Again you want to be careful because too many choices can have the opposite effect (source).
Then I included an additional element of persuasion, “scarcity,” by adding an acceptance date and explaining that the property can’t be considered anymore after that date.
And finally, I added a call to action that should never be left out in any copy.
Using three options in a letter of intent may be more challenging for realtors.
Why?
Not all realtors are well versed in creative financing options and how they could earn a commission with them, although it is possible by thinking a bit outside the box.
Who Writes an LOI?
The letter of intent should be written by the most skilled copywriting person on the buyer’s behalf.
Since realtors will have more experience with this (due to more real estate transaction experience and likely marketing), they would be the first candidate for this task.
Regarding persuasion, it could be a good idea to have a lawyer give the draft the green light and ideally use a paper with their seal to give it the impression of authority.
Real Estate Letter of Intent Template & Example Overview
I will leave you with an overview table of different sources where you can find real estate letter of intent templates and examples.
Remember that they are likely not overhauled with copywriting principles and persuasion elements, and some may come dangerously close to being considered binding (remember the court ruling above).
| LOI Templates to Purchase Property | LOI Templates to Purchase Commercial Property | LOI Templates to Lease Property |
|---|---|---|
| Source 1 | Source 1 | Source 1 |
| Source 2 | Source 2 | |
| Source 3 | Source 3 | |
| Source 4 | Source 4 | |
| Source 5 | ||
| Source 6 | ||
| Source 7 | ||
| Source 8 | ||
| Source 9 | ||
| Source 10 |
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