REI Automated
Exit Strategies

Novation Deals Explained: The Exit Strategy Most Wholesalers Don't Know About

REI Automated · · 2 min read

A novation is a legal concept where the original contract between you and the seller is replaced with a new contract between the seller and your end buyer. You’re essentially substituting a new party into the deal.

How It Differs From Assignment

Assignment: You transfer YOUR contract to a buyer. You were always the middle. Novation: The original contract is canceled and a NEW contract is created directly between the seller and the end buyer.

Why Use Novation?

  1. List on the MLS: Because you have the seller’s agreement to sell through you, you can list the property on the MLS and attract retail buyers — who pay more than cash investors.
  2. Higher profits: Retail buyers using financing pay closer to market value. Your spread can be 2-3x a typical wholesale assignment.
  3. No assignment fee visibility: The buyer sees a normal purchase transaction.
  4. Works in restrictive states: Some states that restrict assignment are fine with novation.

The Process

  1. Get a property under contract with a novation clause (or separate novation agreement)
  2. List the property on the MLS (you or a licensed agent)
  3. Find a retail buyer willing to pay near-market price
  4. The seller and new buyer sign a new purchase agreement
  5. You collect your fee at closing (structured as a marketing fee or finder’s fee)

Requirements

  • You typically need a real estate license OR work with a licensed agent
  • The seller must agree to the novation arrangement upfront
  • Your contract must include clear novation rights
  • A closing attorney or title company familiar with novation

Example

You find a distressed property worth $200,000 that the seller will accept $140,000 for. Instead of wholesaling it to an investor for $155,000 ($15,000 fee), you list it on the MLS for $190,000. A retail buyer offers $185,000. Your profit: $45,000 minus selling costs.

That’s 3x what you’d make on a standard wholesale.

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