Volume #39: What Is a Letter of Intent, and Should You Sign One

Read Time: 3-4 minutes

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PROBLEM:

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A letter of intent (LOI) is relatively uncommon in New Zealand property transactions, but some real estate agents may ask you to submit one — especially if you’re not planning to bid at auction.

At first glance, it might seem harmless. A letter of intent is non-binding and simply outlines what you’re willing to pay. But should you sign one?

My advice: In most cases, no.

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RISK:

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Submitting a letter of intent is like playing poker and showing your hand before the game starts.

Here’s why:

• You give away your price and conditions. The seller now knows your limits, giving them an advantage in negotiations.
• It can be used to set the auction reserve. If multiple buyers submit LOIs, the seller may use that information to determine a higher reserve price.
• It benefits the seller, not you. The seller isn’t required to provide their expectations—so why should you reveal yours?

I often joke with buyers:

"Did the seller give you a letter of intent stating the lowest price they’d accept?"

Of course not!

So why would you do the opposite?

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CONTEXT:

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Agents may encourage you to sign an LOI by saying:

• “This helps the seller understand buyer interest.”
• “It shows the vendor you're serious.”
• “We might be able to negotiate with you post-auction.”

While these statements sound reasonable, the reality is:

• An LOI does not guarantee the seller will negotiate with you later.
• If the property passes in at auction, you could have negotiated better terms without revealing your position in advance.

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SOLUTION:

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Instead of submitting a letter of intent, do this instead:

✅ Express Interest Without Revealing Your Hand

• Let the agent know you’re interested but don’t commit to a price.
• Ask what the vendor’s price expectations are instead.

✅ Wait Until After the Auction

• If the property doesn’t sell, you’ll be in a stronger negotiating position.
• Without an LOI, you can negotiate without the seller having prior knowledge of your offer.

✅ If You Do Sign, Get Legal Advice First

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TL; DR - Should You Sign a Letter of Intent?

✔ Usually, no. It gives away too much information.

✔ You wouldn’t expect the seller to give you one — so why do it yourself?

✔ It can be used to set the auction reserve.

✔ Instead, express interest without committing to a price.

✔ If you do sign, consult a lawyer to ensure it’s non-binding.

Negotiation is all about strategy. Keep your cards close until it’s time to play them. Need help navigating the process? Let’s chat.