Letter of Intent to Purchase Real Estate

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Letter of Intent to Purchase Real Estate

Michael Prim
Developer · Western Springs, IL · Member since 2016 · 6 posts · 0 votes

Curious if anyone is using or has experience with using a Letter of Intent to purchase real estate? See link: https://www.biggerpockets.com/files/user/PRoob/fil...

In talking with my attorney, he was familiar with this type of letter, and said it could be used for both commercial and residential properties. I asked specifically about multi-family units, be he said it could also be used for SFH.

However, I introduced this to my agent and she had some push back:

"As far as the form is concerned, I do not think a seller or attorney would go for it - there's nothing legally binding in addition to no "skin in the game" for the buyer. If I were representing a seller, I would be under no obligation to present such a form since it does not represent a true bonafied offer.If I decided to go ahead and present, I would advise the seller not to accept - again since it a not a bonafied offer and I would conclude that the form did not represent a "ready, willing and able buyer" In addition, in most of the areas around here and, especially in this price range, it is a seller's market and there would be no reason to accept such a form."
 

 My intention with this letter, as I've heard other investors using them (I believe I heard a biggerpockets podcast talking about them), was to speed up the offer/acquisition process, and spend less time touring properties with a seller who isn't even in the same ball park as me, when it comes to the purchase price.

Any thoughts, suggestions when using something like this? Also, to my agent's point, why would a seller entertain something like this? How is this to their advantage?

Any help is appreciated.

Thanks,

Mike

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Michael Prim I'm sure you'll get a lot of different perspectives. Personally, for an SFR just have your realtor call their realtor and socialize a verbal offer. I don't think you'd get a quick "yes" but you'd either get a 1.) Heck no! or 2.) Put it in writing. The latter is what you (well, I would) look for. Some sellers in multifamily commercial will want to see a letter of intent before releasing financials of the property or letting potential buyers tour the property. The dynamics are a little different in that it's more of a logistical pain and you don't want to spook current renters. At least with a letter of intent you're theoretically +/- light repairs when it comes to a purchase price. You don't want to have a commerical multifamily listed for $2M, give tours, release financials, answer questions, and then get an offer of "$750K but need owner financing and can only put $5K down."
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  • Michael Prim
    OP
    Developer · Western Springs, IL · Member since 2016 · 6 posts · 0 votes
    9y

    @Andrew Johnson Thanks for the reply. Ok, a verbal offer route seems reasonable for SFR.

    Yeah, I understood this letter was more common place in commercial multifamily, etc. as well. I definitely see the advantages to both seller and buyer in that case.

    Any thought to calling the listing agents yourself - cut out the middleman (the agent) - for the time being, and then get them back in the loop once a price is agreed to? 

    I guess this questions the effectiveness of my agent, and perhaps a more motivated/creative one would be suggesting this and carrying it out.....? But perhaps the listing agent might not be as trusting with Me, a random investor, calling them vs. an agent? I guess I'm thinking out loud...

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Michael Prim I'd go through your agent.  I'm presuming you're working with someone.  I don't know it "adds credibility" but I know my agent gets calls returned quicker than me.  Assuming you have a solid agent I don't think there's any advantage to *not* working through them.

    Others may have different opinions/experiences.

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  • Brett Goldsmith
    Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
    9y

    Letters of intent can be nice in a myriad of situations. Standard SFR homes with a listing agent involved though is where they seem to be less common or useful at times.

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  • Justin Koopmans
    Investor · Everywhere, USA · Member since 2016 · 69 posts · 19 votes
    9y

    @Michael Prim, don't mean to hijack your post (so please ask more questions if you need to), but I was about to ask the same question in regards to small and mid-sized multi-family. I'm looking at a duplex and a 9Plex right now. I don't have an realtor representing me and so I'd like to submit a letter of intent before we write up an official offer. 

    Smart? 

    If so, does anyone have a good example of what a letter of intent should look like? I've googled it and google spits out a bunch of different options of what it could look like. 

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  • Account Closed
    Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
    9y

    @Michael Prim I've been battling it out with the worlds toughest seller (88 years old, retired Army CSM, Korea/Vietnam vet and also a retired real estate broker) for 3 weeks now on a portion of his portfolio. We finally came to terms (part cash, part seller financing) with a few other moving parts.

    Instead of jumping right to contracts, i wanted to get the terms in writing in order to line up the financing so I put the meat and potatoes of it in a letter of intent.

    He told me to take that letter and shove it where the sun don't shine..and come back with a contract or don't come back at all lol.

    So take from that what you will and good luck!

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  • Michael Prim
    OP
    Developer · Western Springs, IL · Member since 2016 · 6 posts · 0 votes
    9y

    Thanks for the responses everyone, very helpful. Sounds like a 'it depends' type of situation with these letters.

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