Most wholesalers are stuck playing the same game: find off-market properties, negotiate steep discounts, and assign the deal to a cash buyer who can close fast.

But there’s a ceiling to this strategy. When the seller wants top dollar and your buyers won’t pay more than 70–75% of ARV, the deal dies.

Unless… you use a novation.

Novation agreements are how smart investors flip to retail buyers without ever owning the property, and without needing to double-close, hard money, or high assignment limits.

If you’re not already using novations in your exit strategy, this guide will walk you through exactly how they work, when to use them, and what makes them a game-changer in today’s market.

What Is a Novation Agreement?

At its core, a novation is a legal replacement of one contract with another, with the consent of all parties involved.

In real estate, a novation allows you to:

Get under contract with a seller
Find a new end buyer (often retail)
Replace your original purchase agreement with a new contract between the seller and end buyer
Get paid directly from escrow as a line item

Key difference from assignment: With an assignment, you're transferring your rights to an existing contract. With a novation, you're substituting in a new contract altogether.

That difference matters. A lot.

Novation vs. Assignment: The Exit Strategy Comparison

Let’s compare how novations work vs. traditional wholesaling in real-world terms.

With novation:

• You’re not assigning the original contract.
  
  
  

• You don’t need to double close or come out of pocket.
  
  
  

• You can use conventional or FHA buyers, because they’re contracting directly with the seller.
  
  
  

• You get paid via HUD as a line item (often labeled as “consulting” or “marketing” fee).
  
  
  

The Novation Process: Step-by-Step

Here’s how a typical novation deal plays out from start to finish:

1. Lock Up the Property

You get a signed agreement with the seller (often a standard purchase agreement + a novation addendum). This agreement should:

• Allow marketing the property

• Permit repairs or showings

• Grant you the right to substitute the end buyer

This is key: The seller must agree to the novation terms up front.

2. Run the Numbers

You’ll evaluate the property like a flip or wholetail:

• What is the retail ARV?

• What repairs are needed to get it retail-ready?

• Can you invest in light touch-ups (paint, staging, etc.)?

• Will it appraise?

Your profit needs to be built in between the seller’s net price and the retail end buyer’s price.

3. Find a Retail Buyer

Now list the property on the MLS, this is the novation sweet spot.

Because you’re not technically assigning, you can use an agent and list at retail pricing.

That opens the door to:

• Conventional buyers

• FHA/VA buyers

• First-time homebuyers

• Owner-occupants

These are the folks willing to pay full price, as long as the property is financeable and move-in ready.

4. Replace the Contract (Novate It)

Once your retail buyer is locked in, you initiate the novation.

That means:

• The original contract between you and the seller is substituted with a new one

• The buyer is now in direct contract with the seller

• You’re removed from the original purchase agreement

• Your profit is baked into the HUD/CD as a third-party fee

Title companies must understand and support novations. (More on that later.)

5. Close and Get Paid

At closing:

• The seller gets their agreed-upon price

• The end buyer gets title

• You get a fee (sometimes $20K, $40K, or more) on the HUD as a line item

And you never had to own the property.

Why Novations Work (Especially Now)

The market has changed.

Sellers aren’t giving away properties at 60% of ARV anymore, not without serious distress. And many motivated sellers are still hoping for close-to-retail pricing.

That’s where novations come in.

Here’s why they’re so powerful right now:

1. Novations Let You Say Yes to More Sellers

Traditional wholesale offers are offensive to many sellers.

But novation allows you to say:

“I can’t pay full price myself… but I work with retail buyers who might. I can handle the process, get the house listed, and make it hassle-free for you.”

It’s a softer pitch. It lets you solve more seller problems without needing steep discounts.

2. You Get Access to Retail Buyers

The best offers come from people who live in the house, not investors trying to squeeze a return.

When you can access retail MLS buyers:

• Your deal spreads increase

• Your buyer pool expands

• You’re not dependent on cash buyers

In fact, you can sell at full ARV, minus minor fix-up costs, and still profit.

3. It Keeps You Compliant

Some states are tightening laws around wholesaling. Disclosures, licensing, and assignment limits are getting stricter.

Novation helps you:

• Avoid assignment caps

• Sell to financing buyers

• Stay compliant without double closing

You’re not transferring contract rights, you’re replacing the contract.

Real-World Example: Novation Profit Breakdown

Let’s say:

• Seller agrees to $220K net

• You clean up, stage, and list at $275K

• It sells to FHA buyer at full price

• After agent commissions, you net $260K

• Seller gets $220K

• You walk away with $40K profit

No hard money. No double close. No disclosure drama. Just clean profit from a smart retail exit.

Common Novation Deal Structures

There are multiple ways to run a novation. Here are the most common:

A. Basic Novation with MLS Listing

• You sign a novation agreement with the seller

• List the property with your agent (or a partner’s agent)

• Find a retail buyer

• Novate the contract and get paid via HUD

This is the cleanest, most common form.

B. Novation with Repairs

Sometimes you invest in:

• Light rehab

• Paint, flooring, fixtures

• Staging or landscaping

This adds value before listing. You might spend $5K–$10K and make $20K–$40K more.

It’s essentially a wholetail flip, without owning the house.

C. Partnered Novation

You partner with an agent or another investor who handles:

• Retail buyer sourcing

• Showings

• Negotiation

You split the profits but scale faster with less time in the trenches.

The Legal Side: Contracts and Compliance

Novation requires airtight paperwork and a good title partner.

Documents You’ll Likely Need

• Purchase agreement with novation clause or addendum

• Authorization to market

• Authorization to list (if using MLS)

• Novation agreement signed by seller and buyer

• Fee disclosure to title/escrow

Make sure all parties understand:

• Seller is agreeing to the process

• You’re not the end buyer

• You are due a fee for services rendered

State Law Considerations

Some states have tight laws on wholesaling, marketing, or dealing in real estate without a license.

Novation can offer a workaround, but talk to a real estate attorney to:

• Review your paperwork

• Ensure you’re not crossing legal lines

• Avoid triggering license requirements

Pro tip: Avoid calling it an “assignment fee” on the HUD. Instead, use “consulting,” “marketing,” or “transaction coordination” fee, whatever fits your state’s title standards.

When NOT to Use a Novation

Novations are powerful, but not always the right move. Avoid them when:

• The property is too distressed for financing

• Seller won’t give you the access or time to list

• Timeline is too tight for an MLS sale

• There’s a tenant who won’t cooperate

• Appraisal risk is too high

Also, if your market moves fast and cash buyers are strong, a traditional assignment may be quicker and cleaner.

How to Talk to Sellers About Novation

The key to a successful novation is positioning.

Here’s a sample script:

“Mr. Seller, here’s the truth, I can’t personally pay $270K for your home. But I do work with people who buy retail. If we partner together, I can handle getting the property cleaned up, listed, and sold, without you having to pay commissions or fix anything. You’ll get the price we agreed on, and I’ll just collect a fee if it sells for more. If it doesn’t, you owe me nothing.”

That’s much easier to swallow than:

“I’m going to assign this to another investor who will pay less.”

Novation sounds like help, not a lowball tactic.

Title Company Matters: Choose the Right Partner

Not all title companies will handle novations.

You need:

• Investor-friendly title reps

• Experience with third-party fees on HUD

• Willingness to review your docs

• Ability to explain the process to lenders and underwriters

Pro tip: Always pre-qualify your title company. Ask:

• “Have you closed novation deals before?”

• “Will you allow a consulting fee on the HUD?”

• “Are you comfortable with retail buyers and conventional loans on these?”

Questions to Ask Before Novating a Deal

Before you dive into a novation, ask yourself:

• Will the home pass a retail inspection or appraisal?

• Can I get seller permission to list?

• Do I have a reliable agent to list the home?

• Can I control access and showings?

• Is there enough spread between seller price and retail value?

• Will the seller sign a novation agreement?

If the answer is yes across the board, you might have a six-figure novation waiting.

Add Novation to Your Exit Toolkit

You don’t need to replace wholesaling. But you should expand your options.

Here’s the bottom line:

• Novation lets you go after higher-margin sellers who won’t sell at a discount

• It lets you exit through retail buyers paying full price

• You don’t need cash, credit, or transactional funding

• You can scale your wholesaling business by solving more problems and capturing more spread

As investors face tighter markets, rising rates, and more competition… novations are the next evolution.