With the fast pace of real estate transactions in the current market, it’s high time to make sure we understand how to properly use the C.A.R. standard-form Notice to Buyer to Perform (NBP) and Demand to Close Escrow (DCE).

Question #1 (Very Easy Level): How many days of notice must a seller give to a buyer when serving an NBP as compared to a DCE? 

Answer #1: A seller serving an NBP must give the buyer at least 2 days to do what is asked in the NBP, such as remove the buyer’s contingencies (see paragraph 14E of the C.A.R. Residential Purchase Agreement (RPA)). The 2-day requirement is part of the boilerplate language in the RPA, but it can be altered by inserting another number of days, before the parties sign the agreement. In contrast to the 2-day requirement for an NBP, a seller (or buyer) serving a DCE must give the other side at least 3 days to close escrow (unless another timeframe is inserted), before the serving party may cancel (see paragraph 14G).

Practice Tip #A: When a seller expects a sales transaction to be handled quickly with minimal contingencies protecting the buyer, a buyer and buyer’s agent may want to consider inserting in the buyer’s offer a longer timeframe for the NBP. A buyer will have more breathing room during the transaction if the contract requires the seller to serve, for example, a 3-day NBP, as compared to the boilerplate 2-day notice.

Question #2 (Easy Level): If a buyer’s contingency period expires on Monday, June 28, what is the earliest date that the seller could have served, or can serve, an NBP? Also, if escrow is scheduled to close on Monday, June 28, what is the earliest date that the seller could have served, or can serve, a DCE?

Answer #2: If the buyer’s contingency period expires on Monday, June 28, the earliest date that the seller could have served an NBP was Saturday, June 26. The NBP can be served up to 2 “Days Prior” to the expiration of the contingency period (see paragraph 14E). It doesn’t matter that June 26 is a Saturday, because “Days Prior” is specifically defined in paragraph 30H of the RPA as calendar days before the specified event. Similarly, if escrow is scheduled to close on June 28, the earliest date that the seller could have served a DCE was Friday, June 25, or 3 “Days Prior” to the scheduled close of escrow date (see paragraph 14G).

Question #3 (Medium Level): Can a seller serve a buyer with an NBP and DCE at the same time?

Answer #3: Yes, because the RPA does not prohibit the simultaneous service of an NBP and DCE. A seller may, for example, be waiting around for a buyer to perform, even though the buyer’s contingencies have already expired and the scheduled timeframe to close escrow has already lapsed. In that situation, the seller can decide to serve the NBP to require the buyer to remove contingencies within 2 days, otherwise the seller will have the right to cancel. When serving the NBP, nothing stops the seller from simultaneously serving the DCE also to require the buyer to close escrow within 3 days, otherwise the seller will have another right to cancel.

Question #4 (Difficult Level): What is the seller’s entitlement to the buyer’s deposit if the seller cancels after serving an NBP as compared to a DCE?

Answer #4: If a seller properly serves a 2-day NBP and the buyer fails to remove the applicable contingencies within the next 2 “Days” as defined, the seller can cancel but must return the deposit to the buyer (see paragraph 14D(1)). On the other hand, if a seller properly serves a 3-day DCE and the buyer fails to close escrow within the next 3 “Days” as defined, the seller can cancel, and for buyers who have already removed all contingencies, the seller may also be entitled to keep the buyer’s deposit as liquidated damages.

Practice Tip #B: As the listing agent, do not make the mistake of serving an NBP as a notice to the buyer to close escrow, especially when the buyer has already removed all contingencies. In that situation, you should serve a 3-day DCE to close escrow, and if the buyer fails to close, the seller can both cancel and be entitled to keep the buyer’s deposit.

-Thank You to Karen Heyrend (Ventura Office) for suggesting this week’s legal tip!

Copyright© 2021 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of June 28, 2021. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.