Are LOIs ok to use

[Charlene Fedoroff]

When faxing an offer to listing agents is it professionally ok to do a LOI rather than a purchase agreement (on REO's or successions for example). Thanks in advance!

[Bill Gulley]

Kind of thing.....where did you hear about a letter of intent?

Letters of intent are appropriate in larger real estate offerings. Let's consider a motel for example, just $3.5MM 250 rooms usual amenities.

Any idea of the due diligence involved? The personal property involved, room furniture, common area furniture and fixtures, kitchen/dinning area equipment, laundry facilities, pool and sauna......get the picture.....

You can't make a firm offer until the due diligence is completed, inventory lists checked, condition of equipment assessed, mechanical assessments...etc.

All the LOI does is to form a written intent of interest in the property and under what terms and conditions that due diligence will be performed, what activities the seller will assist in, the expectations of contracting, the time frame expected for inspections and when they may be accomplished. In any ongoing business a seller rarely wants a business interruption for such activities and if such needs to be done, then how those activities can be accomplished with the least disruption needs to be agreed to.

A letter of intent is to form a meeting of the minds that leads to a formal contract and offer. When terms are reached in a LOI the parties sign and it is usually held off the market for a period of time. A price range is described with contingencies and reasonable due diligence performed to make a firm offer in that range with justifications.

Now, is that appropriate for a house or a duplex, REO? Kind of silly then isn't it. I know the question was asked because of what a letter of intent wasn't really clear, so it was a good question.

You just don't send a letter to a seller and say I'm interested in your home, you make an offer. If the bank owns that motel a LOI will likely be used. :)