The Letter of Intent (LOI) is the first formal document in a CRE transaction. It outlines the key business terms that, if agreed, will become the basis for a definitive purchase agreement (PSA). The LOI is non-binding on most terms (so either party can still walk), but it sets the anchor for everything that follows.

Done well, the LOI shapes the negotiation in your favor before the PSA is even drafted. Done poorly, it locks you into bad positions or signals weakness that you'll pay for throughout the deal.

This lesson covers how to draft an effective LOI, what to include, what to leave out, and the strategic moves the best buyers make.

What an LOI does

An LOI serves four purposes:

1. Demonstrate seriousness

A written, detailed LOI signals you're a real buyer. Sellers receive verbal offers and casual interest constantly. A formal LOI elevates you above tire-kickers.

2. Anchor the price

Your LOI price becomes the anchor for the negotiation. If the seller counters, they're countering against your number. Anchoring matters.

3. Establish key business terms

Beyond price, the LOI establishes:

Closing date
Due diligence period
Earnest money
Financing contingency
Property condition requirements
Title and survey requirements
Inclusions / exclusions
Broker commissions

If both sides agree on these in the LOI, the PSA negotiation is mostly drafting. If you don't address them in the LOI, you'll fight about them later.

4. Create a path to a deal

A well-drafted LOI gives both sides a clear sense that a deal is achievable. It builds momentum. The seller can visualize signing. The broker can sell the seller on it. Vague or sparse LOIs leave too much uncertainty and stall.

Structure of a strong LOI

A typical commercial LOI is 2-4 pages, structured into clear sections. Here's a complete template:

LETTER OF INTENT TO PURCHASE

[Date]

Seller: [Name of seller entity]
Property: [Address, parcel ID, brief description]

This Letter of Intent ("LOI") sets forth the principal terms upon which 
[Buyer Entity] ("Buyer") is prepared to acquire the above-referenced property
("Property") from Seller. This LOI is non-binding except as expressly stated
in Section 14 below.

1. PURCHASE PRICE
   $[Amount], payable in cash at closing.

2. EARNEST MONEY DEPOSIT
   $[Amount] to be deposited with [Title Company] within 3 business days of
   PSA execution. Earnest money becomes non-refundable at expiration of the
   Due Diligence Period.

3. DUE DILIGENCE PERIOD
   [60] days from full execution of PSA. During this period, Buyer may
   terminate the PSA for any reason and receive full refund of earnest money.

4. CLOSING DATE
   [30] days after expiration of Due Diligence Period.

5. TITLE
   Seller to deliver marketable title, subject only to permitted exceptions.
   Seller to provide a current title commitment within 10 days of PSA execution.
   Buyer's title insurance to be issued at closing.

6. SURVEY
   Seller to provide existing survey, if any, within 5 days of PSA execution.
   Buyer may obtain new ALTA survey at Buyer's expense.

7. PROPERTY CONDITION
   Property delivered in "as-is, where-is" condition, subject to:
   - All representations and warranties in the PSA
   - Property delivered in substantially the same condition as on date of PSA
   - All currently operating systems to remain operating through closing

8. SELLER DELIVERABLES (Within 10 days of PSA execution)
   - Most recent rent roll
   - Trailing 24 months operating statements
   - All tenant leases and amendments
   - All service contracts
   - Most recent property tax bills (3 years)
   - Insurance policy and most recent invoice
   - Existing surveys, environmental reports, and PCAs
   - Any pending litigation involving the Property

9. ENVIRONMENTAL
   Buyer to obtain Phase I ESA at Buyer's expense within DD Period. Seller to
   reasonably cooperate with environmental investigation.

10. ESTOPPELS
    Seller to obtain estoppel certificates from [all tenants / tenants
    representing 80% of GLA] within 30 days of PSA execution.

11. FINANCING CONTINGENCY
    PSA conditional on Buyer obtaining financing on terms reasonably acceptable
    to Buyer within [45] days of PSA execution.

12. BROKERAGE
    [Buyer represented by ___; Seller represented by ___; commission per
    listing agreement, paid by Seller at closing.]

13. EXCLUSIVITY
    Upon execution of this LOI, Seller agrees to negotiate exclusively with
    Buyer for [21] days. Seller shall not solicit or accept other offers
    during this period.

14. BINDING PROVISIONS
    Sections 13 (Exclusivity), 15 (Confidentiality), and 16 (Expenses) are
    binding upon both parties upon mutual execution of this LOI. All other
    sections are non-binding statements of intent.

15. CONFIDENTIALITY
    Both parties agree to keep this LOI and all due diligence materials
    confidential, except as required by law or to advisors.

16. EXPENSES
    Each party shall bear its own expenses in connection with this transaction.

17. EXPIRATION
    This LOI expires if not accepted by [Date + 5 days].

Acknowledged and agreed:

Buyer: _________________________ Date: _________
Seller: ________________________ Date: _________

This is a strong, complete LOI. Let's walk through the strategic decisions in each section.

Strategic choices in the LOI

Purchase price — how to anchor

Your LOI price should be:

Low enough to leave room for negotiation
High enough to be credible (not insulting)
Specific ($3,725,000, not $3,750,000) — specific numbers signal serious analysis
Justified by your underwriting — be ready to explain how you got there

Lowballing kills momentum. If your offer is significantly below the asking price, the seller dismisses it and the broker stops returning your calls. There's a sweet spot — typically 5-15% below asking for a serious offer.

If the asking price is significantly above market, you can justify a much lower offer with comp data: "Recent transactions of comparable properties have been at 7.0-7.5% cap rates. Our offer is at 7.2% cap on verified NOI."

Earnest money — how much to put up

Earnest money signals seriousness. Higher EM = stronger offer.

Typical ranges:

Small deals (<$2M): $25K-$100K (1-5%)
Mid deals ($2-10M): $50K-$500K (1-5%)
Large deals (>$10M): $250K-$2M+ (1-3%)

Higher EM is meaningful when sellers are weighing competing offers. If you offer $3.8M with $200K EM and a competing buyer offers $3.85M with $50K EM, you may win — the seller perceives less risk of fall-out.

The downside: higher EM means more capital at risk if you walk after going hard.

Due diligence period — how long to ask for

Standard DD periods:

Vacant land: 90-120 days
Stabilized commercial / multifamily: 45-60 days
Single-tenant NNN: 30-45 days
Hot/quick deals: 20-30 days

Longer is better for the buyer; shorter is better for the seller. Sellers in competitive situations often want short DD to reduce the buyer's "free option."

Your strategy: ask for what you actually need, plus a small buffer. Don't ask for 90 days if you really only need 45 — sellers will reject you in favor of faster buyers.

If the property requires Phase II environmental work, you may need 60+ days. If it's a clean Class A office building, 30-45 days is plenty.

Closing date — strategic anchor

The closing date is more strategic than people realize. Some sellers want fast closes (1031 exchange, retirement, urgent capital need); others want slow closes (their own purchase pending, tax timing).

Ask the broker about seller's preferred closing date and align with it. This is often the cheapest concession you can offer.

Financing contingency — how to handle

A financing contingency protects you if you can't get a loan. But sellers hate it — it's another way for the buyer to walk.

Three approaches:

Standard contingency (45-day financing approval) — sellers tolerate this, especially in slower markets
Limited contingency (only fails if financing isn't available "on commercially reasonable terms") — friendlier to seller, riskier for buyer
No contingency (you bear all financing risk) — strongest offer, requires you to be confident in financing

In hot markets, no-contingency offers win. In slow markets, you can include the contingency without penalty. Read the room.

Exclusivity — the most undervalued LOI clause

The exclusivity / no-shop clause is one of the most valuable things you can negotiate in an LOI. It prevents the seller from soliciting or accepting competing offers while you're under contract for due diligence.

Without it, you spend money on DD and the seller takes a higher offer behind your back. With it, you have a window to actually do your DD.

Standard: 21-30 days exclusivity from LOI execution. Always include it.

Inclusions and exclusions

What's included in the sale? What's excluded?

Personal property (FF&E)
Existing leases
Service contracts (which transfer? which terminate?)
Permits and approvals
Intellectual property (logos, websites, etc.)
Tenant security deposits

Spell out the major inclusions in the LOI. Don't leave them for the PSA — that's how you find out the seller intended to take the marquee sign with them.

Mistakes to avoid in LOIs

1. Being too vague

"Subject to mutually acceptable PSA terms" is too vague. Spell out specific terms. Vague LOIs invite re-negotiation later.

2. Being too aggressive

Aggressive lowballs without justification get ignored. Match your tone to the deal — strong but professional.

3. Forgetting exclusivity

Sellers will shop your offer. Always include the exclusivity clause.

4. Putting everything in the LOI

Some terms belong in the PSA, not the LOI. Detailed indemnification, complex closing mechanics, post-closing obligations — these clutter the LOI and slow negotiation. Save the details for the PSA.

5. Signing without legal review

For larger deals (over $5M), have your attorney review the LOI before signing. The LOI is non-binding on price but binding on exclusivity, confidentiality, and broker commission language. Mistakes here are costly.

6. Forgetting to note "non-binding"

Without explicit language stating the LOI is non-binding, courts have sometimes enforced LOIs as binding contracts. Always include the non-binding language.

7. Open-ended expiration

Your LOI should expire if not accepted within 5-7 days. Otherwise the seller shops it forever.

How to deliver the LOI

By email with broker copied

The standard delivery method. Send to the seller's broker with your broker (if any) copied. Include a short cover note: "Please find attached our LOI for the [property name]. We've structured this to be straightforward and we're prepared to move quickly. Happy to discuss any questions."

Follow up if no response

24-48 hours after sending, follow up: "Just confirming you received the LOI. Let me know if you need any clarification or if there are aspects to discuss."

If still no response after another 48 hours, call the broker directly. Ignored LOIs are usually ignored because the broker has other offers, the seller is on vacation, or there's some friction. Find out which.

Handle counters professionally

Sellers will almost always counter. Receive the counter, acknowledge it, take 24-48 hours to consider, then respond with your own counter or acceptance.

Don't respond emotionally. Don't respond same-day. Take time to think.

The LOI as an option

Think of the LOI as buying a short option on the deal:

You spend nothing ("non-binding") to lock in the seller for the exclusivity period
During DD, you pay a small amount (DD costs) for the right to walk
If you decide to proceed, you exercise the option by going hard

This mental model helps you think about LOI terms in terms of option value. A longer exclusivity period is worth more to you. A larger earnest money makes the option more expensive. A shorter DD period reduces option value.

Optimize the LOI for option value, not just for "winning" individual terms.

What to take away

The LOI is the first formal document and shapes everything that follows
A complete LOI signals seriousness and elevates you above tire-kickers
Anchor the price low enough to leave room but credible enough to be taken seriously
Earnest money signals seriousness; higher EM wins competitive situations
Always include exclusivity (no-shop) clause — it's the most undervalued LOI term
Spell out specific terms; vague LOIs invite renegotiation
The LOI must be explicitly non-binding (except for exclusivity, confidentiality, expenses)
Have legal review on larger deals
Treat the LOI as an option contract — you're paying for the right to do DD and walk if needed

Next lesson: navigating the LOI counter-offer dance and getting to a signed PSA.

Drafting the Letter of Intent (LOI)