A letter of intent to purchase real estate is an agreement that between the buyer and seller of real estate prior to executing a legally binding contract. In other words it is the preliminary written communication that spells out the intent of buying and purchasing real estate and does not by itself form a legally binding agreement.

The letter of intent to purchase real estate helps make the intentions of the buyer clear and is necessary to prevent the possibility of any misunderstanding arising between the buyer and seller as everything is set out prior to entering into a formal agreement. Another use of the letter is to quantify the exact amount of money that will change hands as well as specify the date of the purchase. Since misunderstandings often arise in the minds of the parties involved, either through oversight or as a deliberate bargaining strategy, buying and selling real estate should have a safeguard in place in the form of a letter of intent to purchase real estate.

All the key information pertaining to the purchase should be clearly set out in an agreement for buying real estate. The letter of intent to purchase real estate should have the complete description of the concerned property, the agreed to purchase price, the amount of deposit to be paid and who shall receive and hold that amount, specify if a tender is involved and for what amount, whether there is a mortgage that is being transferred to the seller and the amount of such mortgage and, finally, who will broker the agreement, in case a broker is involved.

Usually, before writing the letter of intent to purchase real estate, the parties will have entered into verbal negotiations and only after the primary terms have been agreed upon is the potential transaction documented. It also serves as a moral commitment to the terms as set out in the letter and, in addition, helps keep the transaction moving forward towards a successful conclusion.

The majority of letters of intent to purchase real estate are "non-binding" and this may cause confusion as it may be construed to mean that the parties are under no obligations to fulfill the terms as spelled out under this letter of intent. This however, is not the case, though a lot of court cases revolve around this very subject matter and it needs to be thoroughly understood at the very beginning.

It is therefore necessary to decide what kind of letter of intent you will need - whether it is binding or non-binding and you should act with a great deal of prudence in this regard. It is a real misconception that a party to the letter may walk away without fulfilling their obligations and duties and have, in certain cases, ended up paying tens of millions of dollars as a result of unintended consequences.