BiggerPockets

Selling A Home: Do I Have A Firm Commitment?

How do you really know if your home is sold or not? And when you're selling a home, when do you know for sure if it's sold? Well, having bought and sold hundreds of homes over the years I have learned one lesson over and over. And here is what I've learned it's not over till it's over. Doesn't that sound something like baseball? I guess so. The process of selling a home can be lengthy and frustrating at times, just like a baseball game.

Let's look at it like teams playing baseball in order to understand the process a little better.

Some people have sufficient cash on hand to pay for a home without getting a mortgage loan to buy it. This article is not for people with cash, it's for people who are going through the process of borrowing money to buy a home, which is the majority of us.

So, we have Team Sellers and we have Team Buyers. There are several players on each side and, as usual, both sides desire to win. The game begins with the price negotiation and it ends with the transfer of title to the new homeowner, and there's no telling exactly how long the game will last for sure, there's just a general idea.

You know how that works in baseball!

Once the Team Sellers and Team Buyers represented by real estate agents come to an agreement on the selling price and terms (I'm leaving out many details of the negotiation process because this article is about a firm commitment so we won't get bogged-down in the drama of negotiation here) this is where a false certainty can set in. I say false certainty because both teams want the transaction, the game of selling a home to be over and both teams want to win, but everybody has a tendency to forget that another team enters the game at this point. And that's the big important team well call Team Lenders. Suddenly the game has changed completely.

There's never been a baseball game with three teams, has there? Well, every real estate transaction that involves a mortgage lender has three teams for sure, and when Team Lender enters the game it takes control.

Team Lender is in charge and, in a strange way, it is also in the game to win. If Team Lender cannot make a profit loaning money with minimal risks, well, then the game is just over, that's it. The Team Sellers and Team Buyers have both lost. If Team Lender doesn't win, nobody wins. No mortgage loan means no sale.

I tell this story to explain that nobody involved in the transaction knows if there's a firm commitment from the lender until there's a letter in the mail, a fax or an official email announcing that the lender is making a firm commitment to loan a certain amount of money at a certain interest rate on or before a certain date. That is called a firm commitment, and everything leading up to that communication is just preliminary.

A firm commitment by a mortgage lender is the point at which everyone involved in selling a home knows that the sale can actually happen. That is a good day for everyone!

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