In this video, Real Estate Broker Eric Andrews explains what a Letter Of Intent is and how an LOI applies to real estate in NC.
Speaker 1: What is a letter of intent?
Speaker 2: Letter of intent. So some people refer to them as acronym LOI letter of intent, letter of intent means it is a nonobligatory method of a buyer initiating a proposal to get a feel for what the seller wants. So if we have, these are very useful in commercial transactions and large land transactions, large land transactions that are going to probably be converted into a subdivision. So we, letter of intent says, okay, this is your purchase price. This is what we’re probably going to rezone it for. This is probably our intended use. This is probably how long it’s going to take for us to get site plan approval. And these are the different steps. These are the deposits that we are willing to make, and this is when we’re willing to release those deposits. And so there are so many moving parts in a big land transaction.
That’s going to get approved for a subdivision that, rather than go back and forth and negotiate all these details, you just lay it out there. And then it’s the seller’s responsibility to come back and say, this is what we like. This is what we don’t like. We can do that as a formal response to the LOI, or we can do it as a memo to buyer. Memo to buyer, it’s a little bit less of a walk away sit, we’re not as obligated or whatever. One of the things is that people think, well, LOIs have no obligations whatsoever. They do. I mean, they have, the seller is obligated. So in LOI where the obligation comes, this is very interesting. So you agree on all the terms of the LOI and you say, all right, we’ve worked it all out.
Well then the buyer has an expense to hire an attorney to write out this offer to purchase. And that could take, it should take two to three days, but it could take three to five days. And so they’re going through all the expense of writing out this beautiful long contract. And in the meantime, you get sideswiped by a superior offer. You have a, that buyer now has damages is if they, if they in good faith, you agree to the LOI and they’re actually writing up the offer to purchase. You’re not open to receive other offers there. You have to give them the opportunity to actually write the purchase agreement.