What Is a Notice to Perform?
A notice to perform is a real estate clause or agreement that requires parties to take defined actions by a specified deadline. The Notice to Perform is required—in many instances—before a party is entitled to cancel a purchase contract. Simply because one party did not perform a contractual obligation does not give the other party the right to cancel until the notice is delivered.
Not all states recognize the notice to perform clause but California is one state that does use this provision. Both the Notice to Buyer to Perform and the Notice to Seller to Perform are documents created by the California Association of REALTORS (CAR).
Removing Sale Contingencies With Notice to Buyers
Real estate agents in California commonly advise sellers to use the Notice to Buyer to Perform to encourage the buyer to remove contingencies. The C.A.R. purchase contract spells out the period for contingency releases.
If the buyer does not remove the contingencies in writing, those contingencies may stay in effect. They do not expire because the time has passed. Real estate transactions can be full of contingencies and the notice can help in removing one or several of the specifications. Common contingencies include:
- Loan contingency
- Appraisal contingency
- Inspection contingencies
- Disclosures and reports
- Contingency to sell buyer's home
Contractual Actions Under Notice to Buyer
Buyers may not be aware that when they sign a C.A.R. purchase agreement, they are making contractual agreements with the seller to do certain things. These obligations might be to deliver signed documents to the seller by a particular date or to provide other forms of evidence of qualification to purchase. Before a seller can cancel a contract due to the buyer's failure to do any of these things, the seller is obligated to send the buyer a notice demanding that the buyer perform. Some common contractual actions are:
- The deposit an earnest money deposit
- Increase the earnest money deposit
- Submit a loan preapproval letter or prequalification
- Provide proof of funds to close escrow
- Sign and return disclosures and reports
- Provide evidence that the buyer's home is in escrow
Why Use a Notice to Buyer to Perform?
Sellers demand that buyers perform because sellers don't want to drag out an escrow, only to find out the buyers have no intention of closing. In the case of a contingency release, the seller may be entitled to the buyer's earnest money deposit if the buyer later cancels the transaction after releasing all contingencies. The amount of the deposit the seller may retain is defined in liquidated damages.
Other times, the seller may actually want to cancel the contract and will look for a reason to force the buyer out of the contract for non-performance. The time period to comply is specified in the Notice to Buyer to Perform.
The Notice to Seller to Perform
The opposite side of a real estate transaction also has access to notice to perform agreements. In California, a buyer's agent may advise clients to give the seller a Notice to Seller to Perform. The homebuyer may take these steps to encourage the seller to provide reports or disclosures needed to complete the sale. If the buyer, for example, does not receive these reports or disclosures from the seller within the period specified in the Notice to Seller to Perform, the buyer may have the right to cancel the contract or delay removing the buyer's own contingencies.
Here are some of the most common types of contractual actions a buyer might request that a seller perform:
- Delivery of the pest inspection
- Delivery of the Seller Property Questionnaire—known as a transfer disclosure statement (TDS)
- Homeowner association documents
- Report on previous insurance claims
- Natural hazard disclosure
- Preliminary title report
- Removal of seller's contingency to buy a new home
- Demand to close escrow
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.