What Is a Letter of Intent?
A Letter of Intent (LOI) is a non-binding document that outlines the key terms of a potential deal before the formal contract is signed. It serves as the “handshake” phase — a written agreement in principle that helps both sides confirm they’re aligned on the major terms.
“The LOI isn’t just paperwork,” Jeremiah explained. “It’s a tool that defines your leverage. It sets expectations before lawyers and money get involved.”
Typical LOIs include deal points such as:
- Purchase price and payment structure
- Due diligence period
- Earnest money deposit
- Closing timeline
- Contingencies and exclusivity clauses
Though not legally binding, a well-written LOI builds trust, streamlines negotiation, and prevents costly misunderstandings later in the process.
Why the LOI Matters More Than You Think
In the rush to close deals, many investors skip the LOI stage — a mistake Jeremiah and Dearonne see often. Without it, buyers and sellers risk misaligned expectations, unclear terms, and potential deal breakdowns once attorneys step in.
“The LOI is where you find out if someone is serious,” Dearonne noted. “It’s the dating stage before the marriage — you learn what you’re really signing up for.”
The LOI protects both sides by clarifying intent and avoiding wasted time. It allows for open discussion before legal fees or contracts complicate things.
How to Negotiate Key Deal Points
Jeremiah outlined several strategic principles for effective LOI negotiation:
- Lead with clarity, not emotion.
Clearly state your goals, price expectations, and terms. Don’t hide behind vague language — ambiguity kills deals. - Understand the other side’s motivation.
Before negotiating, identify what matters most to the seller: price, speed, certainty, or flexibility. Tailor your LOI to those priorities. - Use contingencies wisely.
Build in clauses that protect you during due diligence — like inspection, financing, or partner approval contingencies. - Control the timeline.
Time kills deals. Set clear deadlines for due diligence, financing, and closing to maintain momentum. - Don’t over-negotiate early.
Keep your LOI simple — focus on major terms first. Fine details belong in the purchase agreement, not the initial letter.
“You want an LOI that’s strong enough to guide the deal,” Jeremiah said, “but flexible enough to keep it alive.”
Common Mistakes to Avoid
Jeremiah warned of several pitfalls that often derail negotiations:
- Writing LOIs that are too detailed. Overly complex letters invite legal review before a deal is even confirmed.
- Failing to include key protections. Always clarify due diligence rights, exclusivity, and cancellation terms.
- Not verifying numbers early. A mismatch between stated and actual financials can kill trust fast.
- Letting ego drive the deal. Real negotiation is about problem-solving, not winning.
“You don’t get rich fighting every battle,” Dearonne added. “You get rich by closing good deals — and walking away from bad ones.”
When to Bring in the Legal Team
A key takeaway from the episode: bring your attorney in after the LOI is agreed upon, not before.
“If you loop lawyers in too early,” Jeremiah explained, “you’ll spend thousands debating things that might never happen. Use the LOI to align first — then formalize.”
Once both parties sign the LOI, legal counsel can turn it into a binding Purchase and Sale Agreement (PSA) or Operating Agreement with confidence and speed.
LOIs Beyond Real Estate
Though most common in real estate, LOIs are equally valuable in:
- Business acquisitions (buying a franchise, merging companies, etc.)
- Partnership agreements
- Joint ventures or syndications
- Vendor or investor negotiations
Anywhere two parties need to define terms before going formal, an LOI provides structure and professionalism.
