Letter of Intent (LOI)

An LOI is essentially a written expression of interest. It typically states the price a buyer is proposing, the intended timeline, and any conditions the buyer wants attached, and it is used to show a seller that an offer is serious before either side commits to formal legal paperwork. In residential deals it usually sits in the negotiation phase, before the Option to Purchase is granted, and it is generally understood by both sides to be non binding, meaning either party can still walk away without legal consequence while only an LOI is in place. This is a meaningful distinction from the OTP, which is a formal, paid, legally binding document once granted and exercised. Some commercial and larger transactions use LOIs with binding clauses attached to specific terms, such as confidentiality or exclusivity, but that is the exception rather than the norm for ordinary residential sales.

An LOI most commonly appears early in a negotiation, when a buyer wants to signal a firm price and set of terms to a seller without yet paying an option fee or committing to the formal OTP process. It is also used in situations where more time is needed to finalise financing, complete due diligence, or coordinate multiple parties, such as several siblings selling an inherited property together, before everyone is ready to move to the OTP stage. Some agents use an LOI as a structured way to bring a written offer to a seller, particularly when there are competing interested buyers and the seller wants to see terms in writing before deciding who to proceed with.

What commonly goes wrong is a buyer or seller treating an LOI as though it carries the same weight as an OTP. Because it is typically non binding, a seller who accepts an LOI can still choose to sell to someone else, or ask for a higher price, before the OTP is actually signed and paid for, and a buyer relying on an LOI as if it locked in the deal can be caught off guard if that happens. On the buyer's side, using an LOI to negotiate terms while delaying the actual OTP can also mean losing out to another buyer who moves faster to secure a binding option. Ambiguity in how an LOI is worded, particularly if it accidentally includes language that could be read as creating binding obligations, is another area where disputes occasionally arise.

What a buyer or seller should actually check before relying on an LOI is to have their lawyer confirm, in plain terms, whether the specific document is intended to be binding or not, and to understand that in most residential contexts only the OTP secures the deal. A seller entertaining multiple LOIs should be transparent about the fact that nothing is secured until an OTP is granted and exercised, and a buyer who has agreed terms on an LOI should move promptly to the OTP stage rather than assuming the deal is locked in.

This is general information only, not legal advice. Whether a particular LOI carries any binding effect depends entirely on its specific wording, and that assessment should come from a qualified lawyer.

Winfred Quek is an Associate Marketing Consultant at Crestbrick Pte Ltd (CEA Licence No. L31010886H). CEA R073319H. This page is for general information only and does not constitute financial, investment, or legal advice. Verify current figures with IRAS, HDB, CPF Board, or MAS before making any decision.