Letter Of Offer – All You Need To Know

The Letter of Offer is a written commitment from a potential buyer to the owner/developer, expressing their desire to purchase a particular property. It's usually accompanied with an upfront deposit, often called an earnest payment.
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You’ve found your dream home, and you want to let everyone know about it! But wait, don't post awesome pics on social media yet, so all your friends and family can like your amazing new property!

You see, it’s probably a good idea to let the developer or owner know you INTEND to buy it, and are not just sitting around waiting. That’s where a Letter of Offer comes in.

 

What is the Letter of Offer?

The Letter of Offer is a written commitment from a potential buyer to the owner/developer, expressing their desire to purchase a particular property.

It's often combined with a financial payment to signify a person's resolution not to back out suddenly, and it also binds both parties to the transaction.

The Letter of Offer might come under a few different formal names, so do take note of these as well: Letter of Intent to Purchase or merely Letter of Acceptance.

 

What is the process for creating a Letter of Intent to Purchase?

The first step is finding the property you want to purchase. It’s surprising how many Malaysians aren't sure where to look, so a quick search on our listing page is a good way to start your journey off!

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Once you’ve found a suitable one, the Letter of Intent to Purchase is the next step in ensuring that property becomes yours.

A well-drafted document will almost certainly include a caveat for an upfront deposit, often called an earnest payment. 

Now, this payment is typically 2-3% of the total purchase price, and is usually non-refundable. This deposit also counts as part of the overall 10% downpayment that's required for purchase of a property.

It’s considered best practice to pay this earnest deposit to a neutral third-party in the transaction. This is often a property agent using a stakeholder account, and is sometimes known as 'acting as an escrow agent'.

PropertyGuru Tip
An escrow agent is merely a trusted third-party who's holding onto some form of asset (for example, cash) for someone to deliver, all while a transaction is being finalised.

It should be made clear here that the Letter of Intent to Purchase is NOT a standardised document, so ensuring your rights are protected is an important part of making sure the letter is created correctly. 

One of the things you'd need to check is if you're able to include the right to receive a return of your earnest deposit, in the event that either party withdraws from the deal.

There’s no point in putting money down to buy a property, only to discover the seller has withdrawn from the agreement AND gets to keeps your money!

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A legally binding and properly drafted Letter of Intent to Purchase will usually include a timeframe for the next step: the signing of the Sales and Purchase Agreement (SPA). This will typically be within 14-21 days of the completion of the Letter of Intent.

After the SPA is signed according to the agreed timeframe, the remaining amount of the purchase price would then be paid up (which adds up to the overall 10% downpayment we mentioned earlier).

 

Should you get a lawyer to draft your Letter of Offer?

If you’ve got a good eye for detail, you’ll probably have noticed a lot of cautions mentioned in the process above. Almost all of them revolve around how well drafted your Letter of Offer is.

Signing a letter that says "Joe would like to buy this property, so here’s RM10,000 deposit, thanks!" is already considered to be legally binding, if you weren't aware.

A properly crafted and legally worded document is essential to ensuring that both parties are bound to – and will definitely benefit from – this agreement.

That’s especially true when you consider you’ll be giving thousands of Ringgit of your hard-earned money as part of an assurance to the seller, that goes along with this letter.

 

What a Letter of Offer should include

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A properly drafted Letter of Intent or Letter of Offer can be the difference between property success and downpayment heartbreak.

That means ensuring it has accurate information is an important first step on your property journey. A professionally Letter of Offer will include important details such as:

  • Legal names of seller and buyer
  • Legal address of property
  • Price agreed upon for purchase
  • Total earnest deposit agreed
  • Date by which the SPA must be signed
  • Terms and conditions surrounding the 2-3% earnest deposit
  • Note of any fittings or furniture included in the deal

If you'd like to know how one would generally look like, here's a sample Letter of Offer to purchase property:

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The point regarding the earnest deposit is really where a legal professional can show their worth. Here are just some unfortunate scenarios where your right for a refund is protected can be a very important thing:

  • The property's valuation price coming in lower than the purchase price, leading to a dispute
  • The homebuyer being unable to secure a home loan agreement with a bank
  • Buyer and seller are unable to agree on the terms and conditions when it comes time to sign the SPA

A good Letter of Offer is there to protect all parties in an agreement; it ensures that developers and sellers can be confident of a buyer’s true willingness to buy, and a buyer can demonstrate their own commitment to purchasing the property that they want.

 

Nobody really finds paperwork exciting, but it's very important when it comes to property however! So why not explore our Handy Guide to Legal Documents & Memorandum of Transfer to make sure you're always up-to-date.

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