What an LOI covers
A typical multifamily LOI runs one to three pages and covers:
- Purchase price and how it will be paid: cash, new financing, loan assumption or seller financing.
- Earnest money deposit, when it is due and when it becomes non-refundable.
- Due diligence period and the documents the seller will provide.
- Financing contingency, if any, and its deadline.
- Closing date or timeline, including any 1031 exchange coordination.
- Who pays which closing costs, transfer taxes and title charges.
- Treatment of tenants, deposits, service contracts and employees.
- Exclusivity, meaning the seller stops marketing the property for a set period.
Binding and non-binding terms
Most LOIs say that the business terms are non-binding: either side can walk away until a purchase and sale agreement is signed. A few provisions are often made binding, such as confidentiality, exclusivity for a limited period and the obligation to negotiate in good faith.
The wording matters. An LOI that reads like a contract can be treated as one, so both sides usually include clear language that no binding agreement exists until a definitive contract is signed. Have an attorney review any LOI with binding provisions.
How sellers should compare LOIs
The highest price is not always the best offer. Compare the certainty and speed of each LOI as carefully as the number: the size of the deposit and when it goes hard, the length of due diligence, whether the buyer needs financing, the closing date and the buyer’s track record of closing on terms. A slightly lower price with a short diligence period and no financing contingency can be worth more than a higher offer likely to be renegotiated later.
What happens after an LOI is signed
Once both sides sign, an attorney drafts the purchase and sale agreement, which turns the agreed terms into binding obligations and adds representations, warranties and remedies. The buyer then begins due diligence: reviewing the rent roll, T-12, leases and service contracts, inspecting the property and confirming title and zoning. If diligence uncovers problems, the buyer may ask to renegotiate before the deposit becomes non-refundable.
