Expiration dates in LOIs: Purely psychological

Every LOI I review has an expiration date; usually at the end.

Here is what you should know about expiration dates in LOIs.

There are two ways buyers submit LOIs: presigned and unsigned.

Often LOIs are signed by the buyer when submitted. If seller chooses not to negotiate it, and it is within the expiration date, seller can sign and you have a binding LOI. However, an LOI is mostly non-binding and almost never binds the buyer to anything concrete (other than confidentiality, governing law, costs, etc.).

The result of a signed LOI, if the buyer wants to walk is basically, nothing (assuming no deposit, break fees, or expense reimbursement).

If the LOI is not signed by buyer before submitting, the expiration date is even less legally consequential.

But doesn’t an expiration date prevent an LOI from being shopped? Not usually. The broker can still shop an LOI (and the confidentiality provision is not binding until executed).

So why include an expiration date at all?

There is a psychological benefit and it signals buyer’s intent to move quickly. The seller feels some sense of urgency knowing that the LOI expires, but this is not based on anything concrete. Some sellers and brokers feel that if they don’t sign the LOI it will be pulled.

For this reason, I usually suggest an expiration date of###-###-#### hours. But, I always tell my clients that this expiration date has no legal significance.