What is a novation in real estate wholesaling?
In wholesaling, a novation is a strategy where you sign an agreement with the seller, who keeps owning the home, then list it and sell it at a higher price to a retail buyer, keeping the difference as your fee. A novation replaces one party in a contract with another.
It is used when the seller would not accept a cash-offer price but still wants an investor to handle the sale. The seller’s net, your costs and the listing price decide whether it works.
Because listing a home for sale is regulated in many states, novation deals often involve a licensed broker. Confirm the rules where the property is.
Common mistakes
- Promising the seller a net price before pricing repairs, commission and closing costs.
- Listing the home without the licensed broker your state requires.
- Underestimating how long a retail sale takes.
More questions
How is a novation different from a wholesale assignment?
In an assignment, a cash buyer takes over your contract at a discounted price. In a novation, the home is sold on the open market to a retail buyer, usually at a higher price, and the seller keeps ownership until then.
How long does a novation deal take?
Usually longer than a wholesale deal, because the home may need repairs and a retail buyer may need a mortgage. Plan for a listing period and a normal financed closing.
Does a novation need a real estate agent?
Listing a home for sale is regulated in many states, so novation plans often involve a licensed broker. Confirm the rules where the property is.