A novation isn’t just another creative contract. It’s a legal substitution, where you step into the seller’s shoes and create a new agreement with the end buyer. Done right, it solves the seller’s problem, keeps the agent’s commission intact, and gives you room to profit after repairs and resale.

But done wrong, it can unravel quickly. Title companies may reject it, agents might feel cut out, and regulators can flag it if disclosures aren’t clear. That’s why a clean, step-by-step process matters. The difference between a profitable novation and a legal headache often comes down to documentation and timing.

This guide walks you through the exact sequence professionals use to secure, prepare, and market a novation deal without crossing lines.

Step 1: Get seller commitment in writing

Your first move is securing the seller’s agreement. You’re not buying the property directly, but you are taking control over how it will be sold. That means the seller must fully understand and consent.

• Use a novation agreement, which clearly explains that you’re substituting into the contract and handling repairs and resale

• Explain the benefits simply: no upfront repair costs for the seller, their mortgage gets paid at closing, and their agent still gets commission

• Set realistic expectations, sellers need to know this isn’t a fast cash close, but a structured retail exit

If you skip this clarity, you risk resistance later when the seller realizes you’re bringing in contractors or marketing to new buyers.

Step 2: Bring in the listing agent

Most sellers already have an agent. Instead of working around them, bring the agent in from the start.

• Confirm commission protection, let them know they’ll be paid at closing

• Clarify your role, you’re not replacing them, you’re facilitating the deal so their client’s home can actually sell

• Get their signature on the novation agreement where appropriate

Agents are gatekeepers in novation deals. If they trust you, everything else flows smoothly.

Step 3: Secure access and plan repairs

Once the seller and agent are on board, you’ll need access to the property to make it market-ready.

• Contractor walk-through: get line-item bids with clear scopes of work

• Timeline agreements: spell out how long you’ll need before listing to avoid surprises

• Access documentation: written permission for contractors and lockbox codes

Skipping this step creates confusion when contractors show up unannounced or the agent tries to show the property before repairs are done.

Step 4: Update contracts with the end buyer

The heart of novation is substituting a new buyer contract in place of the seller’s. Legally, this requires proper paperwork.

• Use novation addenda drafted by an attorney familiar with state laws

• Make sure the original seller and their agent consent to the substitution

• Keep everything in writing and avoid side agreements

This is where the title and escrow must be comfortable. If your paperwork isn’t clear, they may refuse to process the deal.

Step 5: Market the property legally

With access secured and contracts aligned, you can market the property. But this step requires caution. You don’t own the property, so you can’t market it as if you do.

• Market through the agent: the licensed listing agent should handle MLS postings and retail marketing

• Use disclosures: any marketing materials should align with the fact that the property is under contract, not owned outright by you

• Stick to your role: you’re coordinating repairs and preparing the transaction, not re-listing on your own

Letting the licensed agent keep control avoids unlicensed marketing violations.

Step 6: Disclose payments and fees

Every dollar flowing through a novation must be visible. Hidden fees or off-record payments risk compliance issues.

• Agent commissions: show up on the closing statement

• Repair costs: either reimbursed through proceeds or already paid, but documented

• Investor margin: listed as a novation fee, assignment fee, or line item on the HUD

Transparency is what makes the deal legal. Title companies and regulators don’t object to novation itself. They object to undisclosed compensation.

Step 7: Close and disburse funds

When the retail buyer closes, the title company will:

• Pay off the seller’s mortgage

• Pay the seller their agreed share

• Pay agents their commissions

• Pay contractors if arranged through escrow

• Pay you your fee or margin

Because everything is disclosed and documented, closing day should feel like a standard retail transaction.

Common mistakes that kill novation deals

Even pros make missteps that tank deals. Here are the ones to watch:

• Failing to disclose investor compensation: this is the biggest compliance risk

• Marketing property without agent involvement: can look like unlicensed brokerage

• Skipping written access agreements creates disputes with contractors and sellers

• Trying to rush repairs leads to quality issues and unhappy retail buyers

• Not preparing the title company, some refuse novations if blindsided at closing

Tools to streamline the process

Novations already require extra communication between sellers, agents, contractors, and buyers. The more parties, the more reminders and paperwork you need to track.

Tools like Goliath Data keep your workflow on track by surfacing motivated seller leads, automating follow-up, and organizing deal progress. Instead of juggling texts and sticky notes, you can manage everything in one dashboard and stay ahead of moving parts.

The bottom line

Locking up and marketing a novation deal legally isn’t about being clever. It’s about being precise. Sellers need clarity, agents need reassurance, contractors need structure, and title companies need full disclosure.

Follow the sequence, secure the seller, involve the agent, set repair agreements, draft proper paperwork, let the agent handle marketing, disclose all compensation, and close through title, and you’ll run clean, repeatable novation deals.

If you’re ready to spend less time chasing paperwork and more time closing, Goliath helps you find motivated sellers, manage contacts, and automate follow-ups so no deal slips through the cracks.

Help Me Close More Deals.