What is the primary purpose of a letter of intent (LOI)?

The primary purpose of a letter of intent (LOI) is to outline the terms of a proposed transaction before finalizing the agreement. An LOI typically serves as a preliminary document that lays out the fundamental aspects of the deal, such as price, terms of sale, and timelines. It helps both parties come to a mutual understanding and provides a framework for further negotiations. While an LOI may express an intention to move forward, it is generally non-binding, which allows for flexibility as the details are further refined and finalized in a formal contract.

In contrast, serving as a legally binding contract is not the function of an LOI; rather, it precedes the formal contract. Financial disclosures related to a property are typically included in due diligence processes and are not specifically the aim of an LOI. Establishing a marketing strategy for a property is outside the scope of an LOI, as it primarily focuses on the transaction terms rather than promotional tactics or strategy.