The short answer? It Depends!

Below is the expert breakdown so you can decide deal-by-deal.

LOI first

What it is
A short, mostly non-binding term sheet capturing price, deposit structure, due diligence, timing, and a few “binding” housekeeping items (confidentiality, access, exclusivity, expense allocation, governing law).

Pros

• Speed & low cost to align: Quick way to flush out price, timelines, deliverables, and seller expectations before lawyers meter up.

• Flexibility: Easy to tweak without deal fatigue; lets you test structure (e.g., phased hard money, entitlement milestones, extension fees).

• Issue discovery early: You can probe hot buttons (reps, estoppels, SNDA counts, assignment rights, 1031 cooperation, carve-outs to “as-is”) before drafting 40+ pages.

• Protects access & info: Properly drafted LOIs bind the seller on confidentiality and site/document access and can grant exclusivity/no-shop during DD.

• Helpful with non-institutional sellers: Educates “mom-and-pop” owners and keeps legal spend proportionate early.

Cons

• Ambiguity risk: Sloppy LOIs can accidentally create obligations (e.g., “good-faith negotiation”) or be argued as partially binding beyond what you intended.

• Being shopped: If you don’t secure exclusivity, a seller can float your terms to the next buyer.

• Lost momentum: You still need a PSA; the two-step adds a second negotiation cycle and potential re-trades.

• Perception of softness in auctions: In a tight bid process, an LOI can look “preliminary” versus a buyer who tenders a clean PSA.

When LOI is usually best

• Complex assets/structures: Multi-tenant office/retail/industrial with detailed rent-roll issues, significant cap-ex, co-tenancy, go-dark rights, or unusual prorations.

• Land & development/entitlement: Numerous contingencies (zoning, utilities, wetlands, access, subdivision). Sometimes you’ll use an option or ground lease framework.

• Off-market/relationship deals: Align business terms quickly and lock exclusivity while you (and your lender) underwrite.

LOI must-haves (keep “binding” tight)

• Business terms (price; deposits with timing and “go-hard” triggers; DD length; closing period; extensions & fees).

• Deliverables list & access (rent roll, estoppels form/thresholds, service contracts, environmental, surveys, permits).

• Conditions to closing (clear title standards; SNDA/estoppel counts; lender approvals if applicable).

• Allocation of costs & prorations framework.

• Binding only: Confidentiality, exclusivity/no-shop window, access/indemnity, governing law, broker disclosure, expenses, LOI non-binding clause (explicit).

• A target PSA form/source (e.g., “seller form attached as exhibit” or “industry-standard purchaser form”) to avoid later surprises.

Go straight to PSA

What it is
You deliver (or redline) a full purchase and sale agreement as your “offer.”

Pros

• Signals certainty & wins speed games: In auctions or hot submarkets, a near-execution-ready PSA can beat higher prices that are still circling with LOIs.

• Prevents being shopped: Once executed, you’re locked; even pre-execution, a detailed PSA shows seriousness and narrows the window for a seller to shop terms.

• Reduces second-order disputes: You negotiate the actual reps, survival periods, caps/baskets, default remedies, assignment rights, estoppel/SNDA mechanics, title cure, etc., up front.

• Cleaner lender path: Lenders (and ICs) prefer reviewing the final contract terms early, not promises in an LOI.

Cons

• Higher legal spend up front: You draft/mark a full agreement that may not get signed.

• Can spook unsophisticated sellers: A heavy PSA can feel aggressive, slowing engagement or triggering a “seller’s counsel only” stance.

• Less room to “feel out” price: If you need to keep multiple structures open (seller financing, earn-out, tax allocations), locking a PSA too early can constrain creativity.

• Process risk: If you haven’t surfaced deal issues yet (environmental, unusual lease clauses), you may burn time iterating the PSA anyway.

When PSA-first is usually best

• Competitive or brokered auctions: Especially with institutional sellers who will force their form—show up with clean economics and few edits.

• Simple/standardized trades: STNL/NNN, small industrial boxes with vanilla leases, or assets where industry boilerplate covers 95% of the risk.

• Speed-critical capital (e.g., 1031): Time pressure favors compressing to a single negotiation cycle.

• Bank/REO/government sellers: They’ll insist on their paper; jumping to PSA limits churn.

Practical decision matrix (rule of thumb)

• Complexity high / competition low → LOI first.
  You want flexibility to structure DD, entitlements, deliverables, and closing conditions before spending on a full PSA.

• Complexity low / competition high → PSA first.
  You want to out-execute the field and bind quickly.

• Institutional seller with a bid timeline → LOI per their process, then move fast on their PSA.
  Expect limited reps, strong “as-is,” liability caps, and tight cure rights.

• Off-market with a mom-and-pop → LOI to educate and secure exclusivity, then a buyer-friendly PSA.

Risk & drafting tips (whichever path you choose)

• Make the LOI truly non-binding (except the few intended binding sections). Avoid language that implies a duty to consummate a deal; say it’s only a framework for a potential PSA.

• Exclusivity matters. If you use an LOI, include a clear no-shop with remedies if breached (at minimum, expenses reimbursement; stronger if you can get it).

• Define “go-hard” triggers precisely. Tie non-refundable dates to objective milestones (e.g., receipt of critical estoppels, specific third-party approvals, clean Phase I or agreed scope for Phase II).

• Title & survey standards upfront. Even in an LOI, state the minimum acceptable title cure rights and permitted exceptions concept to avoid PSA surprises.

• Estoppels/SNDA thresholds. Specify counts (e.g., 80–90% of tenants by square footage, no material adverse matters).

• Survival, caps, and baskets. In PSA negotiations, pre-wire typical survival periods, liability caps (often tied to % of price), and knowledge qualifiers to reduce redlines later.

• Assignment & 1031 language. Preserve assignability to affiliates and 1031 cooperation (at no cost to other party).

• Broker of record clarity. Name brokerage relationships and commission instructions in both instruments to avoid closing table disputes.

• Process management. Even with an LOI, consider drafting your PSA in parallel so you can hand it over quickly once business points are settled.

Quick scenarios for a Florida/Sunbelt broker’s world

• Multi-tenant industrial in a rising rent submarket: LOI → lock exclusivity, define estoppel/SNDA thresholds, nail down rent-roll accuracy rep, then PSA.

• STNL dollar store at a market cap rate: PSA first (clean addenda, few edits) to beat competing buyers.

• Mixed-use land assemblage with entitlements: LOI (or option) with phased deposits and extension mechanics; PSA after key diligence gates.

• Institutional office seller running a call-for-offers: Follow their LOI template, expect their PSA form—come pre-cleared with only essential redlines.

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Bottom line

Use LOI → PSA when you need flexibility, education, and issue-spotting with minimal early legal spend. Lead PSA-first when the edge you need is speed and certainty (auctions, standardized assets, tight timelines). The best operators are bilingual: they choose the path that best matches asset complexity and market competitiveness, and they draft each instrument to protect exclusivity, clarity, and closing certainty.

If you want, I can drop in a one-page LOI skeleton and a PSA “red-flag” checklist you can reuse on your deals.