The traditional wholesale model is getting squeezed.

Between tighter assignment regulations, pickier sellers, and the rise of retail-ready buyers, wholesalers and creative real estate investors are adapting. One of the most powerful tools gaining momentum in 2025?

Novation agreements.

Once obscure, novations are becoming a go-to strategy for investors who want to close more deals and increase their spreads, without needing to buy the property themselves.

This guide will walk you through:

• What a novation is and how it differs from an assignment

• Why investors are leaning into novations this year

• What types of deals are perfect for novation strategies

• Legal and logistical red flags to watch out for

• And how to explain novations to sellers in plain English

Let’s dig in.

What Is a Novation Agreement in Real Estate?

At its core, a novation agreement is a legal tool that allows you to replace one party to a contract with another, with the consent of all parties involved.

In real estate investing, here’s how it plays out:

1. You get a property under contract with a seller.

2. Instead of assigning your rights to another investor, you replace yourself in the contract with an end buyer (often a retail buyer using a mortgage).

3. You collect your profit at closing, the difference between the price you agreed to with the seller and what the buyer agrees to pay.

It’s like selling retail without owning the home.

Key distinction: With novations, you can sell to mortgage-backed buyers, unlike assignments which typically require cash buyers only.

Why Novations Are Exploding in 2025

So why are more investors using novations now than ever before?

Let’s break it down.

1. Assignments Are Under Fire

States like Illinois, Oklahoma, and others have already passed laws requiring wholesalers to get licensed, disclose intentions, or limit the ability to assign contracts. The legal landscape is shifting fast.

Investors using novations are staying ahead of the curve by:

• Avoiding assignment disclosures

• Selling directly to MLS buyers

• Keeping spreads more private

2. Sellers Want More Money

In 2025, sellers are more informed and more connected. With Zillow, PropStream, and Facebook real estate groups at their fingertips, they often know what their home could sell for.

That makes it harder to get super-low wholesale prices.

Novation pitch: You can promise a higher price (since the buyer is paying retail), while still locking in your margin through the back-end agreement.

3. Retail Buyers Are Still Hungry

While investors are pulling back in some markets, retail demand remains strong, especially for move-in ready homes, entry-level price points, and specific zip codes.

If you can bring a retail-ready deal to the MLS without owning the home, you’re competing where margins are often higher.

4. Spread Potential Is Bigger

A $20K wholesale fee might raise eyebrows. A $20K novated profit? Hidden in the difference between contract price and sale price, and paid at closing by the title company.

In some markets, investors are seeing double or triple their usual assignment spreads using novations.

What Types of Deals Are Best for Novation?

Novation isn’t for every deal. But when the stars align, it can be a goldmine.

Here’s when it works best:

Properties in livable or nearly retail condition

These houses don’t need full rehabs, maybe just paint, carpet, or staging. You’re not trying to sell to a flipper, you’re appealing to someone who wants to live there.

Sellers who want a higher price than cash allows

The seller wants $220K. Your flipper buyer tops out at $180K. But a retail buyer would pay $240K with financing. Novation bridges the gap and gets everyone what they want.

Sellers who aren’t in a rush to close

Since novation deals often involve listing the property and waiting for retail financing, this isn’t a quick-close play. But for sellers with time? It's a win.

Properties with solid curb appeal or easy cosmetic fixes

You want retail buyers to fall in love at first glance. The fewer visual objections, the better.

The Novation Process Step by Step

Let’s break it down.

1. Get the Seller to Sign a Novation-Ready Agreement

You’ll want a purchase contract that:

• Includes the ability to market the property publicly (MLS)

• Gives you the right to show the home

• Allows you to bring in a buyer and be replaced in the contract

Pro tip: Work with a local real estate attorney to make sure your paperwork is bulletproof.

2. Get a Novation Agreement Signed

This is a separate document that outlines how you’ll be removed from the contract and replaced by the end buyer.

It should also:

• Disclose your fee (even if not to the cent)

• Outline conditions (e.g. seller doesn’t need to make repairs, you’ll handle showings, etc.)

• Make clear that you’re not acting as an agent (unless you are)

3. Do Light Cleanup or Staging (Optional)

If the house needs a little help to shine, some investors invest $1–3K to get it show-ready. You’re betting on the bigger spread from a retail buyer.

4. List It on the MLS

Here’s where it gets fun: You (or your agent partner) list the property at full retail price. You don’t need to own it because your agreement allows for marketing.

5. Find a Retail Buyer

You’re looking for:

• FHA or conventional buyers

• Owner-occupants

• Anyone who can close through a standard mortgage

Once they’re locked in, your title company prepares to execute the novation at closing.

6. Get Paid at Closing

You’re replaced on the contract, the seller gets their agreed amount, the buyer closes with their mortgage, and you collect the spread as a disbursement on the closing statement.

Real Numbers: Novation vs. Assignment

Let’s compare.

Example A: Assignment

• You get a property under contract at $180K.

• You assign it to a flipper for $190K.

• You make a $10K fee.

• End buyer pays cash.

Example B: Novation

• You get the same property under contract at $180K.

• You clean it up, list it for $240K.

• It sells to a retail buyer for $230K.

• Seller gets $180K, you get a $50K spread minus closing/staging/agent costs.

Even with $10K in costs, your profit could be 4x higher.

How to Explain Novation to Sellers

Most sellers have never heard the word novation.

You need to keep it simple. Here’s a sample script:

“You want $200K, and I want to make sure you get it. Instead of buying the house myself, I’ll go find a buyer willing to pay a little more. I’ll handle everything, marketing, showings, paperwork. You don’t pay anything extra. We all close together through a title company, and you walk away with the amount we agreed on.”

Avoid overexplaining the legal structure. Focus on outcomes:

• They get their price

• You handle the work

• Everyone wins

Common Seller Objections (and How to Handle Them)

“Are you a realtor?”

“No, I’m not representing you as an agent. I’m actually stepping into your shoes to find a buyer, kind of like a project manager. You don’t pay me a commission.”

“What if it doesn’t sell?”

“If I can’t get a buyer in the time we agree on, you’re not obligated to anything. You’re still the owner, and you can move forward however you want.”

“Will people come see my house?”

“Yes, like any home sale, we’ll need to schedule showings. But I’ll coordinate everything with you directly.”

Risk Factors and How to Protect Yourself

Novations aren’t risk-free. Here’s what to watch out for.

Title companies that don’t understand novations

Not all title companies are willing to close these. Work only with those who have closed novation deals before.

Agents who don’t understand your role

If you’re listing via an agent, they need to be fully briefed on your structure, and protect your interests.

Buyers who want concessions

Be careful not to agree to seller credits that cut into your margin. You don’t own the home, so every negotiation flows through you.

Sellers who get impatient

Retail deals take time. If the seller is anxious or changes their mind, it can blow up your deal. Set clear expectations early.

Why Novations Are the Smart Play in 2025

Wholesale fees are being scrutinized. Sellers are savvier. And retail buyers are still hungry for clean homes.

Novations solve all three problems.

They allow you to:

• Offer sellers top-dollar

• Tap into retail buyer pools

• Close with minimal capital

• Collect bigger checks, quietly

If you’re serious about building a sustainable, high-margin investing business in 2025 and beyond, novations shouldn’t be optional. They should be part of your playbook.

Just make sure your contracts, title company, and team are ready.

Because once you get it right?

There’s no going back to $5K assignment fees.