The biggest promise in novation is simple: you can profit like a realtor without being one.
You don’t need to take title. You don’t need to use your own money. And your upside can often be double or triple that of a wholesale assignment.

But if you’re not careful, that juicy spread can slip right through your fingers, either through negotiation, buyer concessions, title hiccups, or inspection drama.

This article breaks down how to protect your spread in a novation deal, without overcommitting to things you can’t control, can’t deliver, or shouldn’t be on the hook for.

The Unique Challenge of Spreads in Novation Deals

Unlike wholesaling, where your assignment fee is baked into the front end and paid by an investor, novation spreads are usually:

• Paid on the HUD/CD at closing

• Pulled from the difference between what the seller gets and what the buyer pays

• Not “guaranteed” unless you structure the paperwork correctly

Which means: your spread only exists if the final price holds, the buyer closes, and no last-minute concessions drain your deal.

If you’ve ever watched a $30K profit shrink to $4K in the last 10 days of escrow, you know what we’re talking about.

The 5 Biggest Spread-Killers in Novation (and How to Avoid Them)

Let’s break it down.

1. Seller Misunderstands the Agreement

If your seller doesn’t fully understand that:

• You’re not buying the home directly

• Your profit comes from the end buyer

• You have control over the resale price

…then they may feel blindsided when they see the final HUD.

They’ll ask:

• “Why are you making $25K?”

• “I thought I was selling it to you, not someone else.”

• “You didn’t do anything, why should you get that money?”

How to protect yourself:

• Explain the structure clearly from the beginning

• Use a strong agreement with novation language (reviewed by your attorney)

• Include a signed authorization to market

• Include the seller’s final net proceeds in writing so they know exactly what they’re walking away with

If they know they’re getting $200,000 and it shows up on the HUD, they’ll care less that you’re making $27,000 behind the scenes.

2. Giving Verbal Promises That Hurt You Later

Novation requires a little finesse in your seller conversations. If you make offhand promises to “take care of” repairs, timelines, or buyer expectations, those words can come back to bite you, even if they’re not in writing.

Common verbal commitments that shrink your spread:

• “Don’t worry about anything, I’ll fix it before closing.”

• “You’ll be out in two weeks, no matter what.”

• “The buyer won’t ask for repairs, I’ll handle it.”

Then the buyer’s inspection turns up a $4,800 HVAC issue, and the seller’s looking at you for the fix.

How to protect yourself:

• Stay vague on repairs until you know the buyer’s demands

• Use phrases like “We’ll handle it if needed, but let’s wait and see what the buyer requests.”

• Put all seller expectations in writing and never promise something you can’t control

If you're offering credits or managing minor repairs as part of your dispo strategy, that’s fine, just don’t promise the moon until the moon sends over a clean appraisal.

3. Pricing Too High (or Too Low) for the Market

Your spread is the difference between seller price and buyer price. But if your listing is overpriced or underperforms, that margin gets squeezed:

• You may have to lower the price to attract a buyer

• You may need to offer concessions

• You may face multiple low appraisals

Even worse: pricing too low triggers buyer suspicion. It leads to renegotiations, over-inspections, and delays that can make the seller uneasy.

How to protect your spread:

• Price the property 2–3% under the nearest comparable retail listings, not investor comps

• List on a Thursday or Friday to trigger weekend urgency

• Track buyer traffic during the first 72 hours

• Be willing to adjust fast, before the listing goes stale

If you have multiple buyers interested within the first weekend, you’re in a great position to drive offers above list and preserve your full margin.

4. Letting Buyer Concessions Eat Your Margin

Retail buyers love asking for stuff:

• Closing cost credits

• Appliance repairs

• Home warranties

• Move-in help

• Price reductions after inspection

And because most novation deals involve FHA or VA financing, you’re already walking a tightrope with appraisal limits and condition requirements.

Here’s the danger:

If the buyer asks for a $7,500 credit and the seller won’t budge, that money comes from you, unless you’ve protected yourself contractually.

How to protect your spread:

• Make it clear in the seller agreement that your fee is calculated off their net

• Leave buffer room in your resale price to handle minor concessions

• Don’t emotionally commit to the full spread

• Be ready to counter with smart negotiation tactics:

“We’d be happy to provide a $3,000 credit toward closing costs instead of dropping price, this keeps your financing on track.”

The goal is to keep the deal moving while not surrendering more than you have to.

5. Relying on the Wrong Title Company or Agent

This one’s sneaky, but deadly.

If your title company:

• Doesn’t understand how novation works

• Refuses to show your fee on the HUD

• Flags your contract as “unusual”

• Tells the seller your role is questionable

…then your deal can unravel 2–3 days before funding.

Same goes for agents who inject confusion into the deal, push for renegotiation, or let the buyer contact the seller directly.

How to protect your spread:

• Use a title company experienced with novation and explain your structure clearly up front

• Provide all contracts, marketing rights, and seller net forms early

• Keep the seller insulated from buyer-side communication

• Vet your buyers and their agents for professionalism and experience

A well-trained team makes sure your spread lands exactly where you planned: on the final HUD, in your column, with no last-minute drama.

How to Structure Your Novation Deal for Maximum Spread Protection

Here’s a framework you can use to keep control from Day 1 to Day 30+:

Your Seller Agreement Should Include:

• Clear language that seller stays on title until closing

• Agreed-upon net proceeds to the seller, fixed and final

• Acknowledgement that you’ll be bringing a third-party buyer

• Disclosure that inspections, showings, and financing are involved

• A clause stating you’re not liable for buyer concessions unless agreed in writing

Your Dispo Plan Should Include:

• Pricing strategy based on active MLS comps, not investor logic

• Retail-ready listing with clean photos, financing terms, and urgency

• Pre-screening buyers for funding type and approval status

• A fallback buyer list or backup offer strategy in case one falls through

Your Title Instructions Should Include:

• A breakdown of seller proceeds and your fee

• Contact chain of custody (who speaks to whom)

• Agreement that all closing docs reflect your role (AIF, POA, or novator)

• Confirmed payment instructions for your cut on the HUD/CD

Don’t “Overown” the Deal to Save the Spread

Here’s the real risk:
In trying to protect your profit, you start promising too much… fixing too much… overcommitting.

That’s when you:

• Pay for repairs you can’t afford

• Push the seller past their comfort zone

• Fight the buyer over credits

• Take on liability that was never yours to begin with

That’s not protection, that’s desperation.

True spread protection means structuring your deal so cleanly and clearly that you don’t have to fight for it at the end.

Because everyone already knew how it worked.

Because the numbers were dialed in.

And because your contracts, positioning, and process did the heavy lifting for you.