What Is a Letter of Intent (LOI)?

By Sam Swenson, CFA, CPA – Updated Aug 8, 2025 at 10:09 PM

Key Points

LOIs start negotiations and clarify initial deal points but are not legally binding.
Common in real estate and M&A, LOIs signal readiness to engage in due diligence.
Terms in an LOI often evolve as formal agreements and due diligence progress.

A letter of intent, or LOI, is a document that states one party’s intent to do business with another. These letters are used in various contexts but are most commonly written in real estate transactions or other large-purchase transactions.

The LOI effectively sets the negotiation process in motion and begins the back-and-forth between the buyer and seller with the hope of ultimately completing a transaction.

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An infographic defining and explaining the term "letter of intent." — Image source: The Motley Fool

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The bottom line on letters of intent

LOIs are quite common in the business world. You’re more likely to see them exchanged if you work in a corporate environment, but you might also see them pop up in your personal life.

If you take anything away, know that an LOI is used to formally begin a negotiation process, but the document isn’t binding in and of itself.

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