• Cole Mizak

When to Use a Letter of Intent

The evolution of the real estate business in Nevada over the last 30 years has resulted in a purchase agreement going from a simple one-page contract to a lengthy purchase offer plus several pages of disclosure forms. This dramatic increase in the amount of paperwork makes it very time-consuming for agents and buyers to prepare and submit offers. It also requires that sellers review a lengthy series of documents before preparing a response and entering into negotiations.

It is sometimes more practical to write a one-page letter of intent instead of a full-blown purchase agreement. The Incline Village/Crystal Bay real estate market is a place where buyers and sellers can have very different perceptions on the value of a property, especially after the significant price changes we have seen during the past six years.

A one-page letter of intent that is properly crafted will contain the essential information that a seller needs to determine whether or not they wish to enter into negotiations with a particular buyer. Using this type of format saves a lot of time for all parties, particularly in the event there is a significant gap between the price and terms being offered and what a seller is willing to accept. It's quite common for listing and selling agents to talk on the phone prior to the preparation of an offer in an effort to determine some of the parameters that would be appealing to the seller. These conversations are also used to gauge whether or not the price and terms being contemplated by a particular buyer would even be considered (or just outright rejected) by the seller.

A nonbinding letter of intent that is presented to the seller creates a situation whereby the parties can begin negotiations without having spent anywhere near the time it takes to write, sign and present the myriad pages of documents required for a full-blown purchase agreement. Some buyers insist on presenting a seller with every piece of paper because they think it makes them look more serious than just submitting a brief letter of intent. However, if the price and terms offered are well outside the range that the seller is willing to consider, a huge amount of time has been spent on work that will generate nothing more than a rejection.

The purpose of a letter of intent is to determine if there is enough common ground to then proceed with writing the full purchase offer along with submitting all of the necessary disclosure forms. Here are some of the parameters that buyers and sellers need to agree on if they begin the negotiating process using a letter of intent:

Purchase price offered

Close of Escrow – X days after acceptance

Financing Terms - The purchase will either be made all cash or if financing is involved the down payment will be at least X% of the purchase price.

Contingency removals will be completed in X days or less

Name of Title Company to provide title and escrow services

Who pays for inspections

Repairs budget of X amount of $

Who pays the escrow fees and transfer tax

Who pays for each title insurance policy

By defining some of these basic terms in a letter of intent buyers and sellers can find out very quickly if they are somewhat close to reaching an agreement or just too far apart to spend any further time negotiating. Everyone on both sides of the transaction can save a lot of time and energy when using a letter of intent as a precursor to formal negotiations. While we don't recommend using this tactic on a frequent basis, when used appropriately a letter of intent can be a valuable tool.

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Incline Village, NV 89451

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