What Is a Notice to Perform?
Definition & Examples of Notice to Perform
In realty, a notice to perform is a document that sets up contractual expectations for either the buyer or the seller. If the expectations are not met, then the deal can be canceled. The notice to perform gives one party a chance to remedy the situation before the deal can be canceled by the other party.
Here's what you need to know about notices to perform if you're buying or selling a home.
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. A 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. Once the notice is delivered, the party will have a set amount of time (usually at least a couple of days) to meet the requirements of the notice. The deal can only be canceled after that time has passed.
Not all states recognize the notice to perform clause, but California is one state that does use this provision. The California Association of Realtors (CAR) has created notice to perform forms for agents to use with their clients.
How Does a Notice to Perform Work?
Either the buyer or the seller can issue a notice to perform. However, the two parties may approach the process with different goals.
You aren't required to send a notice to perform if a buyer or seller misses a deadline. A gentle reminder from your real estate agent might be appropriate, but it depends on your circumstances. A notice to perform is usually only used if one party is willing to cancel a deal if certain stipulations aren't met.
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. Real estate transactions can be full of contingencies. Common contingencies include:
- Loan contingency
- Appraisal contingency
- Inspection contingencies
- Disclosures and reports
- Contingency to sell buyer's home
Buyers may not be aware of all the contractual agreements they're making when they sign a CAR purchase agreement. However, 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 that a seller may be concerned about include a buyer's requirement to:
- Make 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 by a specific date
- Provide evidence that the buyer's home is in escrow
Other times, a seller may want to cancel a contract with a specific buyer for some reason that has nothing to do with contingencies. These sellers will look for any reason to force the buyer out of the contract through a notice to perform.
Why Use a Notice to Seller to Perform?
The buyer also has access to notice to perform agreements. In California, for example, a buyer's agent may advise clients to issue a notice to perform to encourage the seller to provide reports or disclosures needed to complete the sale. If the buyer 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:
- Pest inspection
- 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
- A notice to perform, in real estate, is an official document that requires either the buyer or seller to take certain actions by a certain date to avoid the deal's cancellation.
- Some states require that either party issue a notice to perform before canceling a deal.
- Notices to perform are often used to add or remove stipulations to the deal, or they may be used to expedite the closing process.