Letter of Intent – Writing Real Estate Investing Offers that Get Accepted
You find the investment real estate you want to purchase. Now it’s time to make an offer. Making an offer can take one of two different forms depending on whether you are dealing with residential or commercial real estate. The two ways to make an offer are by sending the Seller a contract to purchase, or via a letter of intent to purchase.
Contracts to purchase are legal documents that, once signed, are a binding contract. Since buying single family homes is normally straightforward, you use a contract to purchase to speed up the buying process. This lets the Seller know you are serious and allows you to move quickly to tie up the property to avoid other buyers. This helps you avoid a bidding war because once signed, the Seller must sell you the property unless you do not perform on the contract. Contracts to purchase are used for offers on single family homes primarily because residential real estate contacts are straightforward and standardized in most real estate markets. Pre-printed residential contract forms are readily available from your real estate agent, title company, or office supply store.
Letters of Intent to purchase (called LOIs) are not legally binding like a contract to purchase. Instead, they spell out the general guidelines of your intent to purchase their property. Letters of Intent are standard in the purchase of commercial property where contracts are not standardized like residential real estate. They allow you to communicate the most important aspects of your offer and avoid the expense of a contact before you know if the Seller will accept your offer. Once your LOI is accepted by the buyer, the agreed upon LOI is used as the basis for crafting the contract to purchase.
Think of your LOI as a business letter to the Seller that outlines your offer. You need to be sure to include important information such as purchase price, inspection period, and any financing contingencies.
Below is a list of 11 things you need to include in your LOI to get it accepted:
1. Purchase Price: The first item that you need to include in your letter of intent is the purchase price. You should also include the amount you will put down, earnest money deposit and how much you plan to finance, if any.
2. Inspection Period/Due Diligence Period: This section tells the seller how long you need to do your due diligence on the property. This includes inspections, lease audits, review financials, etc. You can also include what information you want made available to you during your due diligence period.
3. Financing Period: This tells the seller how long you need to secure financing for the investment. You also need to outline any contingencies that you might have dealing with the financing and your purchase of the property.
4. Earnest Money Deposit: In this section you need to tell them how much you are willing to put down, how fast after the contract it will be deposited, and if it will be returned to you if the sale doesn’t go through.
5. Contract to Purchase: This section outlines how fast a contract needs to be completed once your LOI is accepted. You should also mention who is supposed to draft the contract.
6. Brokerage Fees: You need to tell the seller if you are represented by a broker or not. If you are represented by a broker, you need to outline how the commissions are going to be handled. For instance, are you paying your brokers commission or do you expect the selling broker to split his commissions with your broker?
7. Closing Date: Outline when you expect to close after financing has been secured or your due diligence period has expired.
8. Closing Costs: Here you outline how closing costs will be handled. Are you asking the Seller to pay for certain things or are you paying for them all? Perhaps you have expenses you will share equally.
9. Period of Acceptance: This is the deadline you impose on the Seller for accepting your offer. It is always good to keep this short to keep the Seller from using your offer to try to get a better one from another buyer.
10. Conditions: If you have additional conditions of your purchase, it’s always good to address them right up front to avoid problems later on. For instance, if you want the Seller to replace the roofs or provide a credit for repairs, this is where you would address the conditions upon which you will purchase their property.
11. Signatures: Last but not least, be sure to make it easy for the Seller to accept your offer. Make sure you include your signature and date and leave a space for the Seller to sign and date your letter of intent for acceptance.
LOIs are critical if you want to get your offers accepted to purchase investment commercial real estate. Using a Letter of Intent that is professionally crafted and includes important information before going to contract can save you time, money, and get your offers accepted. Letter of intent forms are not available at local stores. However, you can even have your real estate attorney put together a simple LOI for you to use. This will make it easy to write the contract once your offer is accepted.
{ 0 comments… add one now }