The LOI has three jobs in priority order. First, it locks exclusivity — the single most valuable thing the document does, because it takes the seller off the market and shifts negotiating leverage to the buyer for the diligence window. Second, it establishes the economic framework — price, structure, and major terms documented non-bindingly so both sides share the same picture. Third, it opens the diligence door — formal access to books, records, carrier statements, and employee information under defined confidentiality. The structuring discipline is separating the clauses that carry legal weight from the ones that merely express where the deal is heading.
§ 01 · Teeth vs. intentFour binding, five not.
Four provisions are the teeth — binding. The no-shop / exclusivity clause (60–90 days, extendable to 120) is the leverage shift. Confidentiality reinforces the NDA through diligence. Diligence-access rights specify what the buyer can see and under what conditions — on-site only, copies allowed, carrier statements direct from carriers. And expenses (each bears its own, possibly with a reverse break fee in competitive processes) close the set. Five provisions express intent — non-binding: the purchase price ("up to $X subject to confirmatory diligence of Y," never a single point), the payment structure (cash at close plus seller note plus earnout plus rollover), the target closing date (aspirational), the employment terms (transition-services duration, title, compensation framework), and the restrictive covenants in broad outline. Leaving those covenants blank is the single most common LOI mistake.
§ 02 · Exclusivity and earnest moneyThe defaults.
| Deal profile | Exclusivity default |
|---|---|
| Simple all-cash, sub-$2M book | 60 days |
| Standard structure with carrier diligence | 90 days |
| Complex / multi-state / SPA-structured | 120 days |
The rule under the table is absolute: never sign an LOI with an exclusivity period shorter than the realistic diligence timeline, because the clock running out mid-diligence hands leverage back to the seller. Earnest money typically runs 5% of the purchase price, held in escrow, with two negotiation points — refundability (the middle ground is refundable across named contingencies like failed diligence, carrier refusal, or financing, and non-refundable for walking without cause) and the escrow holder (a neutral title company usually wins over the seller's counsel).
§ 03 · The commission-allocation frameworkSolve it now.
Every agency deal needs a commission-allocation framework, and it belongs in the LOI, not deferred to the purchase agreement. Agency-billed business splits by effective date — policies effective on or after closing are the buyer's. Direct-billed business splits by receipt date — commissions received after closing are the buyer's regardless of when the policy was written. Solve it now; it's the buyer-favorable moment to set the rule.
The allocation framework is the clause buyers most often forget, and its absence creates a fight at the worst possible time — after diligence, when both sides are committed. Two related items belong in the LOI for the same reason. The asset scope should name what's included (book of business, goodwill, trade names, specific furniture and equipment, assigned contracts) and excluded (cash on hand, pre-closing receivables, personal vehicles, the owner's non-business assets). And three external-approval contingencies should be written as termination rights — carrier appointments (key carriers refusing to re-appoint kills agency deals more often than buyers expect), financing (bank terms not materially consistent with the model), and lease assignment (landlord refusal).
§ 04 · The four mistakesAnd re-trade discipline.
Four buyer mistakes recur, and each has a clean fix. Price ranges instead of points invite the seller to anchor at the top — state a point with a diligence condition, not a band. Blank covenants read as negotiable — outline the framework ("non-compete five years within 50 miles of the city; non-piracy of existing clients five years"), leaving only the specifics for the definitive agreement. Weak diligence language invites disputes — "sole discretion" beats "reasonable satisfaction" for the diligence-termination right, because weaker phrasing lets the seller argue the findings didn't justify walking. And no commission-allocation framework defers the one calculation every agency deal needs. The discipline that ties it together is re-trade discipline starting at the LOI: if the buyer may need to revisit price on a known risk, name that risk explicitly in the contingencies, which preserves the right to revisit if the specific finding emerges rather than relying on a vague out the seller can contest.
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Terminology on this shelf
- Exclusivity / no-shop
- The binding clause taking the seller off the market for 60–120 days — the LOI's leverage shift.
- Commission allocation
- The framework splitting commissions at close — agency-billed by effective date, direct-billed by receipt date.
- Earnest money
- Typically ~5% of price, held in escrow, refundable across named contingencies.
- Sole discretion
- The diligence-termination standard that beats "reasonable satisfaction" by foreclosing seller disputes.
- External-approval contingencies
- Carrier-appointment, financing, and lease-assignment termination rights that belong in the LOI.
- Re-trade discipline
- Naming a known risk in the contingencies so the right to revisit price is preserved if the finding emerges.