Delays in a real estate deal are incredibly inconvenient. Whether a buyer or seller, you could feel helpless if you’re in escrow and someone is dragging their feet, missing deadlines, and causing delays. Fortunately, there is something you can do about it! Continue reading to find out when and how to use a notice to perform to keep things moving forward.
Related: Understanding Escrow Accounts in Real Estate Investing
What Is A Notice To Perform?
Real estate purchase agreements contain various strict time frames that specify when buyers must execute specific tasks. When a buyer fails to meet these deadlines, the seller can issue a notice to perform, which forces the buyer to do the required action.
These time limits are designated dates that serve as milestones to ensure that the process proceeds as anticipated. If a deadline has passed and the buyer has not completed the agreed-upon measures, the seller may issue a notice. This type of notice is known as a notice to perform.
A notice to perform is a legal real estate measure used to compel a seller or buyer to complete contractual obligations in a timely way. Sellers and buyers are expected to meet agreed-upon deadlines set forth in the purchase agreement. If you’re having trouble persuading your buyer or seller to comply with agreed-upon timeframes, a notice to perform is a highly useful tool.
Issuing a notice to perform gives the other party a timeframe to remedy the situation at hand. These timeframes vary depending on the state. If they still fail to take the agreed-upon action after this window, the party issuing the notice has the option to cancel the deal by following escrow cancellation instructions and, in some situations, keep the earnest money deposit. Both the buyer and the seller have the option of enforcing this deadline.
Uses of Notice to Perform
A notice to perform serves a variety of purposes for both the buyer and the seller. It might work in your favor or against you, depending on your perspective.
Notice to Perform to Seller
A buyer may issue a notice to the seller to perform if the seller is not adhering to the terms of their real estate purchase agreement such as:
- Failed to remove a contingency by the contingency removal date that was agreed on
- Refused to carry out repairs according to the repair agreement
- Failed to deliver the natural hazard reports that were required by law
- Did not provide homeowner association documentation
- Failed to prepare a report detailing previous insurance claims.
As a buyer, the notice to perform might put pressure on a seller to fix the inspector’s findings quickly. If you change your mind and want to look at other homes instead, you can try to submit a notice to perform that the seller will be unable to satisfy as a way to get out of the contract. This means that buyers are under no commitment to purchase until all contingencies have been met.
A notice to seller to perform can bring up the question of whether all contingencies have been met. The purchasers’ approval of the relevant information and the home’s condition are contingencies on their obligation to buy the property.
If the inspection reveals flaws, the buyers may ask the sellers to make repairs, but they are not required to do so. If they decline, the buyers have the option of continuing the deal or terminating it. If the seller agrees to the revisions but fails to produce something by the due date, the buyer can utilize the notice to perform to demand that the seller supply it within a reasonable time, which is usually 48 hours.
Notice to Perform to Buyer
When buyers sign a purchase agreement, they must also meet certain standards. If they fail to meet these conditions, a seller can issue a notice to perform to keep the process continuing. When a seller considers giving a notice to perform, they usually do so because the buyer failed to complete the following:
- Misses the deadline for submitting their Contingency Removal Form
- Fails to give evidence of cash for escrow to be closed
- Is unable or unwilling to send their earnest money deposit to the escrow company as stipulated
- Did not submit a prequalification letter
- Is late in signing and returning reports and disclosures that have been requested
The notice to perform has the distinct advantage of not breaking the seller’s listing agreement, which invariably states that the full commission is due if the seller willingly pulls the home off the market while it is in effect. In another scenario, the seller may find themselves haggling with the buyer and may use receiving a notice to perform as a tool to get out of that specific arrangement so that they can sell to someone else by simply failing to fulfill the deadline and thereby terminating the deal. Both buyers and sellers can benefit from understanding the notice to perform and how to use it. However, this is not a tool to be used lightly.
Should You Use It?
We never advise sending a notice to perform as a first step because it may result in the sale falling through. Instead, find out what’s causing the delay and try to work something out with your buyer or seller. A notice to perform, on the other hand, might be just the tool you need to get things back on track if you’ve exhausted all other choices and your buyer or seller is unresponsive or unwilling to comply. Just be aware that you may be jeopardizing your sale and make sure you’re comfortable with that possibility.
As a seller, you should understand that purchasing a home is a demanding process with numerous procedures that the buyer must complete. Unintentionally, a buyer may make blunders or overlook deadlines. In other cases, lenders’ evaluations and loan approvals are delayed for reasons beyond the buyer’s control. To prevent sabotaging an otherwise good deal, handle your buyer’s inability to perform with empathy and, as a last resort, issue a notice to perform.
The Bottom Line
To prevent sabotaging an otherwise good deal, a notice to perform should be used only as a last choice.
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