You can’t always depend on calls to inform a seller about your intention to purchase something. The more effective way to do this is through a letter of intent to purchase. This is a written document from a buyer to the owner that expresses the desire to buy a certain property. In most cases, it usually comes with a deposit known as an “earnest payment.”

Letters of Intent to Purchase

What is a letter of intent to purchase?

The letter of intent to purchase is a written document from you as a potential buyer to the owner that expresses your desire to buy a certain property. To signify your resolution as a buyer in acquiring the property, you may combine the letter of intent to purchase real estate with a financial payment or an earnest payment. This communication and its attachments bind both parties to the transaction.

Letters Of Intent To Purchase Business

Using a letter of intent to purchase for real estate

Buying a real estate property is an important decision in your life, so it’s very important to get each of the steps in writing. You can start with a letter of intent to purchase business or a letter of intent to purchase real estate that gives you a draft of the prospective sale. You can write this letter when you want to negotiate the terms and conditions of the sale before committing yourself to buy the property. Use the letter when:

  • You want to write down the terms that you have agreed upon tentatively for purchasing the property.
  • You need to give the lending institution evidence of a proposed property purchase.
  • You want to write down the terms that you have agreed upon tentatively for purchasing the property without making a final commitment yet.

One purpose of the letter of intent to purchase is to minimize misunderstandings between you and the owner and to document the progress towards the sale. It’s also an excellent way for you to secure financing for the purchase of the property. However, this letter is a non-binding contract, meaning that the owner of the property still has the option to sell the property to another party.

When you and the seller have decided to go through with a legally-binding contract, you can create a real estate purchase agreement (REPA). This is a legally-binding agreement and as such, the owner cannot sell the property to anyone else once the REPA is in effect.

Things to include in a letter of intent to purchase

The letter should have the accurate information needed for the initial step on your journey to property ownership. It should include the most important details like:

  • The full names of the buyer and the seller.
  • The complete address of the property.
  • The agreed-upon purchase price.
  • The agreed-upon earnest deposit.
  • The date of signing the SPA.
  • The terms and conditions that surround the earnest deposit.
  • A description of any furniture or fittings included in the property.

The earnest deposit factor is where a legal professional may show his worth. Here are a few unfortunate situations that show the importance of protecting your right for a refund:

  • The valuation price of the property goes lower than the agreed-upon purchase price, which, in turn, may lead to a conflict.
  • You aren’t able to get a home loan with a lending institution.
  • You and the seller don’t agree on the terms and conditions in terms of when to sign the SPA.

The letter of intent to sell property or purchase supposedly protects all parties in an agreement, ensuring that sellers can have confidence in a buyer’s willingness to purchase. As a buyer, you can demonstrate your own commitment to purchase the property that you want.

Letters Of Intent To Purchase Real Estate

Do you need a lawyer to write a letter of intent to purchase?

When you place your signature on a letter that states your willingness to purchase something, some already consider this as legally binding. It’s important to have a legally worded and properly crafted document to ensure that both parties get bound to, and benefit from the agreement.

This especially becomes more important to you as a buyer, considering that you will give your hard-earned money as part of the assurance to the seller and goes along with your letter. Therefore, although not needed, it’s recommended to have a lawyer at least go through your letter of intent to purchase.

Why do you need a letter of intent to purchase?

The letter of intent to purchase business or real estate usually describes the detailed information necessary for you and the seller to make a smarter decision for purchasing a business or entering a joint venture. The letter also places you in a position known as “right of first refusal.”

Here, the seller agrees to place you first in line to purchase the business even if other buyers come into the picture. This gives protection to you from spending plenty of money and time investigating the business, only to discover later that the owner decides to sell to another buyer at the last minute.

From the seller’s perspective, the letter of intent gives them the assurance that you are completely serious. The seller has the opportunity to review your business experience and financial standing before making the final decision. On your part as a buyer, it also affords you the chance to dig deeper into the seller’s business to discover any issues or red flags.

Letters Of Intent To Sell Property

Is a letter of intent to purchase legally binding?

As a legal document, the letter of intent to purchase could be legally binding if you and the seller agree that it is. Typically this letter isn’t binding for either party if you both have the choice of canceling the transaction. But the letter should contain provisions on how one of either of you can do this.

Either of you may consider some sections of the letter of intent binding even though the general terms of the letter aren’t. For instance, you could charge the seller with breaking the contract if the seller agrees to give you the right of first refusal then sells to someone else.

Remember that a letter of intent to purchase isn’t a final contract and nor is it a purchase contract. The letter simply provides an outline of the specific steps and actions that the parties take to reach the purchase agreement. As you and the seller go through the process of due diligence, the situation might change. In the process, an issue may come up both parties have to stop first then agree on how such new information affects the deal.

Writing a letter of intent to purchase

A letter of intent to purchase a business isn’t a legal contract but a non-binding agreement to start the negotiations to purchase the business or property. The letter outlines any tentative agreements made orally by you and the seller.

You can then use the letter as a point of reference when the negotiations begin. You can modify any prior agreements or cancel them before finalizing your deal. The letter gives priority to those points that you have agreed upon. Then you can negotiate secondary details next.

Letters of intent can either be long-form or short-form. One good advantage of the long-form letter is that it states any deal-breakers and so you can get them fixed from the start, so that neither party needs to pay for any legal fees later. Long-form letters, however, may slow down the process.

If there are any important insurmountable issues that surface during the initial discussions, it’s far better to know them this early before the start of serious negotiations, with you having exclusivity.

Regardless of whether you make a long or short-form letter, it should clearly state your full name and the full name of the seller in the first paragraph. The proposed purchase price must also appear in the same section.

You should also emphasize the methods of payment, whether they are in the form of single payments, installments or stock options. The next section states your terms and conditions for purchasing the property and this may include a review of:

  • Financial statements
  • Tax returns
  • Vendor relationships

Based on this information, the process moves forward to the final agreement. If you still aren’t ready to purchase or the seller asks for new conditions in the agreement, you can draft a new letter of intent that reflects any new modifications required. Either party can do this. The document may not be legally binding with one exception – that the letter is an agreement to confidentiality during the time you are still reviewing the seller’s tax and financial statements.

Lastly, the letter should have a date on which you plan to close the deal. This date will give you enough time to review all of the documents and then determine their accuracy. You or the seller can change the date on the condition both of you agree to it.