Quick answer: A novation agreement in real estate lets an investor take over a seller's contract position to improve and resell the home, often on the open market, and pay the seller an agreed price at closing. The seller keeps title until the sale. Disclose everything in writing and check state rules. DispoKey JVs only off-market contracts: a 72-hour buyer match, 60/40 in your favor, $0 upfront.
- The seller keeps title until the final sale.
- Spell out price, repairs, timeline and exit in writing.
- Novation deals listed on the MLS do not qualify for DispoKey JVs.
What is a novation agreement?
In general contract law, a novation replaces one party or obligation with another, with everyone's consent. In investor real estate, the term usually describes an arrangement where an investor agrees with a homeowner to prepare and sell the home, then pays the seller an agreed amount when it sells. The investor keeps the difference after costs.
It is often used when a home is worth more on the open market after light work than any cash buyer will pay as-is.
How a novation deal works, step by step
- Agree on terms: the seller's guaranteed price, who pays for repairs, the timeline and what happens if it does not sell.
- Sign the agreement with full disclosure of the investor's role and expected profit range.
- Improve the property: cleaning, paint, repairs.
- Market and sell to a retail buyer, often through a listing.
- Close: the seller signs the deed to the end buyer, receives the agreed price, and the investor is paid from the remaining proceeds.
Protections the seller should have
Because the seller keeps title and takes market risk, the agreement must protect them.
- A clear minimum price and how it is paid.
- Who pays for repairs and whether the seller is reimbursed if the deal ends.
- A firm deadline and the seller's right to cancel after it.
- Required disclosures about the property, such as lead paint for pre-1978 homes.
- Advice to have their own attorney review the agreement.
Risks for the investor
You spend on repairs and marketing before you are paid, and the market can soften. Sellers can change their minds. Some title companies or lenders may question the structure, and some states regulate who may market property they do not own. Keep each step documented and transparent.
Novation vs. assignment vs. JV
An assignment transfers your purchase contract to an end buyer for a fee; a double close uses two closings. A JV partners you with someone who brings buyers. Novation instead aims for a retail sale and usually takes longer. Our guides to double close vs. assignment and how to JV a wholesale deal compare each exit.
Worked example
The illustrative example in this guide shows a seller price of $210,000, a retail sale at $268,000 after $14,000 of work, and the investor's net after selling costs.
| Line (illustrative novation example) | Amount |
|---|---|
| Retail sale price | $268,000 |
| Seller's agreed price | -$210,000 |
| Repairs and prep | -$14,000 |
| Selling costs (example 7%) | -$18,760 |
| Holding costs | -$4,200 |
| Investor net | $21,040 |
Disclosure and taxes
Put the investor's role, the seller's price and the expected resale in writing. The seller remains the owner, so the sale is the seller's for tax purposes; IRS Publication 523 explains home sale tax rules. Check your state real estate commission's rules on marketing property and payment arrangements.
Key terms in a novation agreement
- Seller's net price: the amount the seller receives at closing, and whether it can change.
- Repair budget: who pays, how much and what happens if costs run over.
- Marketing period: how long the home will be marketed and at what list price.
- Access: when the investor and contractors may enter.
- Termination: how either side can end the agreement and what is reimbursed.
- Disclosure: the investor's role and compensation, stated plainly.
Sellers should have their own attorney review the agreement before signing.
When novation makes sense
Novation fits when the home has solid equity, needs only light work and the seller can wait several months for a retail sale. It fits poorly when the home needs major repairs, the seller needs cash quickly, or title has issues. In those cases a direct cash sale to a buyer, arranged through an off-market contract, is usually simpler for everyone.
A typical novation timeline
Expect roughly a few weeks for agreement and repairs, then the local market time to find a buyer, and then 30 to 45 days to close a financed sale. In slower markets the full process can take several months. Set the deadline in the agreement with that range in mind, and tell the seller what happens if the home has not sold by then.
Communicate weekly with the seller about showings, feedback and price changes. Clear updates help keep the agreement on track.
Keep records for every step
Save the signed agreement, repair invoices, listing history and closing statement in one file. Clear records protect both sides if questions come up later.
When a DispoKey JV fits instead
DispoKey only accepts off-market contracts, so novation deals marketed on the MLS do not qualify. If the seller prefers a fast as-is sale instead, submit the signed off-market contract. We match it with vetted cash buyers within 72 hours, split the fee 60/40 in your favor and charge $0 upfront. Submit a deal or text (802) 618-0015 with your DK ID.
When DispoKey may not be your best option
If the plan depends on a retail listing, DispoKey is not the right partner. We fit off-market contracts that need cash buyers quickly.
Key takeaways
- In novation the seller keeps title until the final sale.
- The agreement must protect the seller's price and exit.
- Novation usually means a retail sale and more time.
- MLS-marketed novation deals are not eligible for DispoKey JVs.
Frequently asked questions
What is a novation agreement in real estate?
An arrangement where an investor prepares and resells a seller's home and pays the seller an agreed price at closing.
Is novation the same as wholesaling?
No. Wholesaling usually assigns or double closes an off-market contract; novation aims for a retail sale.
Who holds title in a novation?
The seller keeps title until the home sells to the end buyer.
Does DispoKey accept novation deals?
Only off-market contracts. Deals marketed on the MLS do not qualify.
