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When one party is interested in buying real estate from another party, they typically enter into a binding Purchase Agreement, which describes all of the important terms that have been agreed upon in connection with the sale. The Purchase Agreement is a binding contract, obligating the Seller to sell and the Buyer to buy, but it may be made subject to certain events, for example the Buyer successfully obtaining financing for the purchase and/or the Buyer's acceptance of the results of an inspection of the property. However, even before the Purchase Agreement is entered into, the parties may wish to sign an Intent to Purchase Real Estate (or "Letter of Intent").
The Letter of Intent can be either binding or non-binding, although it is more common to have a non-binding Letter of Intent which merely outlines the basic terms and conditions that are being proposed for the sale transaction. The Letter of Intent offered by this program is a non-binding Letter of Intent. By explicitly stating that the Letter of Intent is non-binding, the parties avoid the risk that one party may seek to enforce the Letter of Intent as a binding agreement or at least require the other party to continue to negotiate in good faith.
With the Letter of Intent, the parties can document the terms that they have already agreed upon, without locking themselves into a binding obligation to complete the transaction. This is useful to
- minimize misunderstandings,
- document progress already attained during negotiations,
- provide a lender with some evidence of how the transaction is likely to be structured, and
- [optional] prohibit the Seller from selling the property to any other party, or even negotiating for its sale, during the course of the current discussions.
