Why the Letter of Intent (LOI) Is the Smart First Step in Commercial Real Estate Deals

What Is a Letter of Intent (LOI)?

In the world of commercial real estate, a Letter of Intent is typically the first official step a buyer takes when expressing interest in purchasing a property.

Think of the LOI as a roadmap—it lays out the basic terms of a potential deal. This usually includes:

• Proposed purchase price

• Timeline for closing

• Due diligence period

• Earnest money deposit

• Any contingencies (such as financing or inspections)

But here’s the most important part: An LOI is not legally binding. Unlike in residential real estate, where a signed offer can quickly evolve into a binding contract, a commercial LOI is more like a handshake with bullet points. It’s a thoughtful, flexible approach that gives both parties room to explore the agreement before moving into formal contracts.

Why Use an LOI?

You might be wondering: if it’s not binding, why bother?

Here are a few reasons why smart investors and business owners always start with an LOI:

1. Clarifies Expectations Early

The LOI ensures both sides are on the same page about the essentials—before spending time (and money) drafting legal contracts.

2. Saves Time in the Long Run

By hammering out major points early, the LOI streamlines the next stage: the Purchase and Sale Agreement (PSA). With fewer surprises, you can move faster when it’s time to finalize the deal.

3. Reduces Miscommunication

A clearly written LOI reduces the chances of deal-breaking misunderstandings later in the process. Everyone understands the “big picture” before lawyers get involved.

4. Protects Buyer Interests

As a buyer, you can use the LOI phase to conduct preliminary research and planning without being legally bound. If something major comes up—like a zoning issue or hidden repair need—you’re not locked in.

What Happens After the LOI?

Once both parties agree on the LOI, the deal isn’t done—but it’s moving in the right direction.

Next comes the Purchase and Sale Agreement (PSA), which is the formal, legally binding contract. Most of the terms outlined in the LOI carry over to the PSA, though you’ll have an opportunity to refine and add legal language.

During this phase, you’ll also complete key tasks like:

• Finalizing financing

• Conducting property inspections and appraisals

• Reviewing title reports and zoning

• Negotiating final deal terms

That’s why the LOI matters so much—it lays the foundation for everything that follows.

A Thoughtful Approach to Real Estate

In commercial real estate, deals aren’t rushed—and that’s a good thing. The Letter of Intent is your opportunity to take a measured, informed first step. It gives you room to think strategically, negotiate fairly, and reduce risk as you move forward.

So if you’re considering buying a property for your business, don’t skip this step. Use the LOI as your starting line—not your finish line—and you’ll be better prepared for a smooth and successful purchase.

Stay tuned as we continue this series and dive deeper into the commercial real estate process—from financing and site selection to long-term ownership strategies. The path to owning your space starts with smart, informed moves—and it begins right here.