In real estate, a notice to perform is a document that sets up a contract with detailed expectations for either the buyer or the seller. If the expectations are not met, the party that sent the notice can cancel the real estate deal. The notice to perform serves two purposes—it gives the first party the chance to tell the other that there is an issue, and the second a chance to fix it before the deal is canceled.
Here's what you need to know about a notice 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 contract that requires parties to act by a set date. In many instances, you must give the notice to perform before you can cancel a purchase contract.
For instance, if you're buying a home and your contract with the seller stated that they needed to repair the deck, they are legally bound to do so. If they don't repair the deck or cannot prove that there is a work order to do it, you cannot cancel the contract right away.
You have to deliver a notice to perform. Once the notice is delivered, the seller has a set amount of time (usually about 48 hours) to meet the requirements of the notice. You can only cancel the deal 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 wants to cancel a deal because their requests aren't met.
Sellers might demand that buyers perform because they don't want to drag out an escrow, only to find out the buyers were never going to close. 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 deals can be full of contingencies. Some common ones are:
- A loan contingency so the seller can cancel the deal if the buyer does not secure a loan in time.
- An appraisal contingency so the buyer can cancel if the home appraises for less than the price in the contract.
- An inspection contingency that allows the buyer to back out of the deal if the inspector finds major issues.
- The seller and buyer might need certain disclosures and reports.
- The buyer may want the house they own to sell before they complete the purchase of another.
Why Use a Notice to Buyer to Perform?
Buyers may not be aware of all the contractual agreements they're making when they sign a purchase agreement. However, before a seller can cancel a contract due to the buyer's failure to do any of these things, the seller must send the buyer a notice demanding that the buyer perform. Some common seller concerns are:
- The buyer hasn't made an earnest money deposit.
- The seller might want to increase the earnest money deposit.
- The buyer needs to submit a loan preapproval or prequalification letter.
- The seller might want to see proof of funds to close escrow.
- The seller might want the buyer to sign and return disclosures and reports by a specific date.
- The seller wants the buyer to provide evidence that their current home is in escrow.
A seller may want to cancel a contract with a specific buyer for reasons that have nothing to do with contingencies. They might look for any reason to force a buyer out of a 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, they may have the right to cancel the contract or delay removing the buyer's contingencies.
Here are some of the most common types of contractual actions a buyer might request:
- They might want the seller to have an updated pest inspection.
- The seller property questionnaire—known as a transfer disclosure statement (TDS)—be filled out and returned.
- That homeowner association documents be presented.
- That any previous insurance claims on the property should be disclosed and documents presented.
- The seller discloses any natural hazards to the property.
- A preliminary title report to view any exceptions to the title policy.
- The seller removes a contingency to buy a new home.
- That escrow is closed by a set date.
- A notice to perform is an official document that requires either a real estate buyer or seller to take certain actions by a specific 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; they may also be used to expedite the closing process.